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Markets Remain in Defensive Stance Ahead of CPI Numbers

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There aren’t many news items on a particular trading day that could send both equities and (oil) commodities down, but reports about Covid breaking out again in Shanghai, China — and the central governments plans to lock down certain regions, creating a drag on the economy. China has had a zero-tolerance policy regarding Covid outbreaks, which in these times of Omicron and other lighter variants has begun to work against them.

Partly that, and partly ongoing concerns about inflation here at home, has sent indexes lower for the day: the Dow was -413 points or 1.19%, the S&P 500 was -1.69% and the Nasdaq took the brunt of the selling today, -299 points or -2.18%. The day started off badly for the tech-heavy Nasdaq, and even though the Dow spooled out lower in the final trading hour, it was the Nasdaq that still fared the worst. The small-cap Russell 2000 dropped -0.71% on the day.

We also saw a further expansion of the gap between 2-year and 10-year bond yields that had inverted for much of last week, which touched off fears of a recession that continue into this week. The 10-year has been climbing skyward of late, now +2.784% versus +2.506% on the 2-year — more than the quarter-point buffer economists usually look at when trying to determine inversions. It looks like the promise of more rate hikes as time moves along is pushing expectations higher on the 10-year.

In France, a run-off election between President Emmanuel Macron and far-right-wing nationalist Marine Le Pen illustrates how politics in France has changed over the past few years. Le Pen — daughter of former leader of the far-right National Front Jean-Marie Le Pen — has never, until now, been considered more than a fringe candidate to lead one of the largest countries in Europe. Yet the ability to enter into a run-off with Macron, even if she doesn’t win on the second ballot, demonstrates the great strides of the French right wing in national politics of late. Don’t expect the proto-fascists in that country to give up now.

Tomorrow’s Consumer Price Index (CPI) numbers are expected to grab headlines in the market ahead of the big banks reporting Q1 earnings starting Wednesday. Last time, the year-over-year headline number reached a 40-year high at 7.9%, and tomorrow we’re expected to see March numbers jump by another half a percentage point. However close to 8.4% this number turns out to be, expect that 50-basis-point rate hike to be forthcoming at the Fed’s next policy meeting early next month — without a doubt.

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