Hello there,

A magnificent Monday to you as markets muddle their way through another week with plenty to be worried about.

In brief (TL:DR)

• U.S. stocks closed mostly higher on Friday with the Dow Jones Industrial Average (+0.44%), the S&P 500 (+0.51%) while the Nasdaq Composite (-0.16%) was down a touch as investors grow increasingly concerned over more hawkish posturing by the U.S. Federal Reserve.

• Asian stocks fell Monday as Russia’s war in Ukraine grinds into a second month and the risk of an economic downturn from tightening U.S. monetary policy hangs over markets.

• Benchmark U.S. 10-year Treasury soared to 2.479% (yields rise when bond prices fall) as early indications suggest an even quickening pace of price increases for March and the Fed continues to throw forward more hawkish rhetoric.

• The dollar pushed higher.

• Oil extended a slide with May 2022 contracts for WTI Crude Oil (Nymex) (-1.00%) at US$104.90 on concerns that China’s mobility curbs due to a rising rate of coronavirus infections will sap demand.

• Gold fell with April 2022 contracts for Gold (Comex) (-0.63%) at US$1,932.40.

• Bitcoin (+1.12%)jumped to US$47,429 as technical traders eye the next level of resistance at US$52,000.

In today's issue...

1. Turns Out Companies Themselves Are Their Biggest Investors

2. The U.S. Federal Reserve is Just Getting Started on Rate Hikes

3. Bitcoin Quietly Erases All Losses for the Year

Market Overview

The Russian invasion of Ukraine continues to disrupt the supplies of key commodities, stoking inflation risks that are contributing to expectations of more aggressive central bank tightening.

Traders are pricing in two full percentage points of U.S. Federal Reserve rate rises over the rest of 2022 and that backdrop has the potential to inject further volatility across stocks, bonds and currencies.

While global shares have recovered from the lows sparked by Russia’s invasion, questions remain about the durability of the equity market advance and how much share buybacks can sustain elevated share prices.

Asian markets were mixed Monday with Tokyo's Nikkei 225 (-0.58%) and Seoul's Kospi Index (-0.03%) down, while Sydney’s ASX 200 (+0.48%) and Hong Kong's Hang Seng Index (+1.03%) were up in the morning trading session.

1. Turns Out Companies Themselves Are There Biggest Investors

• According to data from Goldman Sachs, a record US$319 billion of new share buybacks have been authorized so far this year, with a number of companies using accelerated deals to buy large volumes as quickly as possible when their share prices dip.

• As first quarter reporting starts in the coming weeks, companies may seek this last-minute opportunity to goose their earnings per share, and investors looking to cash out may find this an opportune time to take some money off the table.

While investors get whipsawed by markets facing a variety of headwinds, from the ongoing Russian invasion of Ukraine to tightening monetary policy, America’s companies are taking the opportunity to “buy the dip” on their own shares, in an effort to shore up confidence as growth slows.

According to data from Goldman Sachs, a record US$319 billion of new share buybacks have been authorized so far this year, with a number of companies using accelerated deals to buy large volumes as quickly as possible when their share prices dip.

By way of comparison, at the same time last year, there were just US$267 billion in share buybacks, as markets themselves provided the bulk of buying power.

What is perhaps even more startling is that recently listed companies, that usually hold spend cash to fuel growth, are now returning excess to shareholders, after sharp drops in their stock prices soon after hitting public markets, making repurchases appear more attractive.

Share buybacks are not often used to prop up demand for stocks and increase profitability purely on an earnings per share basis, by reducing the number of shares in circulation, which may also be misleading as profits and growth slows across the board.

Earnings growth is forecast to slow as companies battle rising inflation, higher wages and supply chain issues, increasing the appeal of share buybacks to window-dress their earnings.

But on the flipside, it also suggests that companies are confident in their future prospects, using cash to buy back shares, instead of keeping it on their books for the leaner times ahead.

To be sure, share buyback authorizations aren’t typically rolled out immediately, and can take years to execute, but many companies are opting for the flexibility to have that option available at a moment’s notice.

As first quarter reporting starts in the coming weeks, companies may seek this last-minute opportunity to goose their earnings per share, and investors looking to cash out may find this an opportune time to take some money off the table.

2. The U.S. Federal Reserve is Just Getting Started on Rate Hikes

• Over the past week, top Fed officials who sit on the rate-setting committee, were explicit in the central bank’s willingness to take aggressive action given price pressures.

• Most estimates for the federal funds rate are between 2.0% to 2.5% by the end of the year, but the timing of reaching that target is not as clear.

Staring down the fastest pace of inflation in four decades, the U.S. Federal Reserve may just be getting started when it comes to rate hikes.

Given that markets have been relatively stable after the Fed hiked rates by 0.25% this month, some are now predicting that emboldened policymakers will look towards larger increases to borrowing costs of 0.50% at subsequent rate-setting meetings.

Wall Street forecasts aren’t entirely without basis either.

Over the past week, top Fed officials who sit on the rate-setting committee, were explicit in the central bank’s willingness to take aggressive action given price pressures.

A major clue came from U.S. Federal Reserve Chairman Jerome Powell’s quip last Monday to reporters when he said that there was “nothing” preventing the central bank from moving forward with a 0.50% rate increase in May.

Most estimates for the federal funds rate are between 2.0% to 2.5% by the end of the year, but the timing of reaching that target is not as clear.

In recent history, Powell has consistently delivered on his promises when it’s come to rate hikes and so a 0.50% increase in May is almost a given.

But Powell and his colleagues are also playing a relatively high-stakes poker game when it comes to rates because when you raise by 0.50% at each meeting, you can’t exactly dial down to 0.25% at subsequent rounds without signaling to the market that you’re getting cold feet.

Expectations of steeper rate hikes have roiled U.S. Treasury markets, sending yields surging across all maturities, but what investors really need to lookout for is the slope of the yield curve – because there are some clues that investors are pricing in slower growth in the future, with near-term debt yielding more than that which is further out.

While the slope of the yield curve is less likely to shake the Fed, it does increase the risk of policy missteps that could see an over-aggressive move to hike rates tip the U.S. economy over into recession.

3. Bitcoin Quietly Erases All Losses for the Year

• The rally in Bitcoin and other cryptocurrencies over the past two weeks has been at a steady and progressive pace and the weekend capped off a push past the technically-important US$45,300 level of resistance, which had been a major hurdle for a reversal in the benchmark cryptocurrency.

• Cryptocurrencies have gained alongside broader increases in U.S. equities, with the latter having enjoyed two consecutive weeks of gains.

The weekends are a time to relax, kick back and maybe spend some time trading cryptocurrencies because that’s when all the action happens.

Cryptocurrency markets are 24/7 and so the weekends, when human traders tend to be away from their terminals (the vast majority of trading is still led by humans), is also when volume tends to drop off and swings in either direction tend to be amplified.

That was apparent yet again this weekend, except that volumes were elevated.

To be sure, the rally in Bitcoin and other cryptocurrencies over the past two weeks has been at a steady and progressive pace and the weekend capped off a push past the technically-important US$45,300 level of resistance, which had been a major hurdle for a reversal in the benchmark cryptocurrency.

In Asian trading Bitcoin rose to as high as US$47,300 before retracing to now settle at around US$46,800 at the time of writing (GMT 0200).

Bitcoin is now up just over 1% for the year, compared with a 4.7% decline in the S&P 500, which until fairly recently, it was strongly correlated with.

Fibonacci extensions, a popular technical analysis tool, suggests that US$50,450 and US$54,000 could now be in play.

Bitcoin has traded a tight channel as major central banks took a hawkish turn to cater to rising price pressures and there are expectations that tighter monetary policy will meet less monies available to more risky assets, including cryptocurrencies.

Cryptocurrencies are also coming under greater scrutiny by regulators based on allegations that they have been used by Russians to circumvent Western sanctions, but the blockchain data seems to refute such claims.

Cryptocurrencies have gained alongside broader increases in U.S. equities, with the latter having enjoyed two consecutive weeks of gains.

Bitcoin is now treading the upper end of its trading range, which for other assets would typically see a reversal, but in the case of Bitcoin has often led to fresh highs, with overbought levels historically leading to further gains out over the next year.