March 10, 2025 | Technical Support and CPI Preview

MARKETS

S&P 500: Down -169 points to 5601, VIX: 26.44

Asia: Japan +0.38%, China -0.19%, Hong Kong -1.85%

Europe: Euro Stoxx 50 -1.35%, FTSE -0.67%, DAX -1.56%

FX: USD (DXY) up 0.02%, EUR up 0.07%, GBP down 0.01%, JPY up 0.65%, CNY down 0.19%

Energy: WTI Crude down 0.66% to $66.61, Brent down 0.60% to $69.94

Cross markets: CDX Investment Grade spread +1.73 at 53.22, CDX High Yield spread +8.99 at 335.41

Treasuries: 2-year yields down ~8bp at 3.921%, 10-year yields down ~8bp at 4.217%, 30-year yields down ~7bp at 4.53%

SNAPSHOT

Snapshot: US equities are sharply lower after the S&P 500 (SPX) posted its worst weekly performance since early September. ?The SPX is now ~8% below its all-time high from 2/19, while the Nasdaq 100 (NDX) is ~12% lower. The equal weight S&P is holding up much better, outperforming the cap-weighted index by its largest margin since July ‘24. Tech is the weakest sector again this morning as investors aggressively de-risk with data center-adjacent stocks close behind. Semis continue to sell off despite a bullish Jan/Feb revenue update (+39% YoY) from TSM. ?Banks, travel/leisure, and apparel retailers also underperform, while insurance, pharma and Consumer Staples outperform. ?Rate sensitive REITS and homebuilders also advance as mortgage rates come down. Treasury yields are lower across the curve and giving back ~half of last week’s backup. ?The Dollar Index is little changed after last week’s ~3.5% pullback (largest since November 2022). Gold, copper and WTI crude are lower this morning. ?

·???????? The drivers behind today’s sell-off remain unchanged with policy uncertainty and the tariff agenda weighing on sentiment, GDP, and EPS estimates. ?

·???????? Friday’s rally into the close was largely attributed to comments from Fed Chair Powell who expressed satisfaction with growth and comfort with inflation. ?However, overnight US equity futures fell in response to a weekend interview where Trump said the economy is set to undergo "a period of transition.”??The inflation impact from tariffs seems less important for the moment as breakeven yields move lower.

·???????? Inflation expectations in the NY Fed’s February Survey of Consumer Expectations were little changed from January’s report.? The survey also showed ‘quit probabilities for those employed’ reached the lowest level since July ’23.

·???????? This week brings an important update on inflation with February CPI due on Wednesday. ?This week’s macro calendar also includes January JOLTS job openings (tomorrow), February PPI/weekly jobless claims on Thursday and preliminary March University of Michigan consumer sentiment (with inflation expectations) on Friday.? The bond market will absorb more Treasury issuance this week, while Congress continues to work on a Continuing Resolution to avoid a government shutdown on 3/15. ?

·???????? China’s deflationary spiral worsened in February with CPI and PPI both negative and below consensus.? Norway’s CPI for February came in well above expectations at +3.6% YoY, up from +2.3% and above the consensus forecast of +2.6%. ?

·???????? M&A headlines are in focus with NOW confirming the acquisition of privately held Moveworks and RDFN to be acquired by RKT. Shares of CTSH are higher on reports that activist Mantle Ridge has built a $1B stake, while BECN has confirmed discussions with QXO regarding a possible transaction. Friday after the close, we learned that DASH, TKO, WSM and EXE will join the SPX as of 3/24.

·???????? ORCL is the earnings highlight after the close with results from ASAN, MTN and NX also on the schedule.

JSC PERSPECTIVE

Chartist: The SPX is trading below its 200-day average, which tends to trigger more CTA selling. ?From a purely technical perspective, the 200-day average is less significant than a break below the September breakout range at 5648. ?While closing levels below 5648 challenge the bullish trend for the SPX, the broad equity market remains far more resilient with the equal weight S&P down just ~4% from the 2/19 SPX ATH.

Btw: The ~40bp decline in 10-year yields over the last three weeks is part of a painful risk-off trade for US equity markets, but it clearly helps the government roll ~$3.1T of US Treasuries this year. ?In looking for beneficial side effects, we note that US mortgage rates have now declined in each of the past six weeks. ?Taking a step back, it seems the new administration has already achieved some of its stated policy ambitions including lower bond yields, lower crude prices, fewer illegal border crossings and getting Europe to pay a greater share for their own defense.

CPI: Wednesday’s CPI report will be an important catalyst for equity markets and the stage is set for a relief rally with positioning metrics now below neutral and bearish sentiment near record extremes. Consensus is looking for a headline print of +0.32% MoM with the core rate expected to be +0.26%. ?This equates to +2.9% YoY for the headline and +3.2% YoY for core CPI. ?If consensus is correct, that core CPI print would be the lowest since April ‘21. Unfortunately, TIPS breakeven yields are currently priced for a ~0.22% core CPI print, which means an inline report will be received negatively by the market. ?

FACT OF THE DAY

The Domino’s logo has 3 dots because that’s how many stores there were in 1969. They planned to add a new dot for every store that opened, but that was quickly scrapped as the franchise grew rapidly.

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CATALYST CALENDAR

Tomorrow: 1) NFIB small business optimism survey for February; 2) January JOLTs report; 3) Japan February PPI; 4) Earnings before the open: CIEN, DKS, FERG, KSS, UNFI. After the close: CASY.

Wednesday: 1) US February CPI; 2) India IP for January and CPI for February; 3) Earnings before the open: ABM, CXM. Earnings after the close: ADBE, AEO, CCI, PATH, S.

Thursday: 1) US February PPI; 2) Weekly jobless claims; 3) US household net worth; 4) Eurozone industrial production for January; 5) Earnings before the open: DG. After the close: DOCU, RBRK, SMTC, ULTA.

Friday: 1) Michigan sentiment report for March; 2) UK industrial/manufacturing production and GDP for January; 3) Earnings before the open: GOGO.

Sunday: 1) China new home prices/retail sales/industrial production for February.