Time to kick EM's tires?

<html xmlns="http://www.w3.org/1999/xhtml"><head><title>LIVE MARKETS-Time to kick EM's tires?</title></head><body>

Major U.S. stock indexes higher: Nasdaq out front, up ~1%

Cons disc leads S&P 500 sector gainers; utilities sole loser

Euro STOXX 600 index off ~0.2%

Dollar slips; gold, crude, bitcoin gain

U.S. 10-Year Treasury yield dips to ~3.52%

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The bear market may have taken a disproportionately large bite out of emerging market (EM) securities. However, Saira Malik, chief investment officer at Nuveen, doesn't expect them to be left behind when global markets eventually rebound.

According to Malik, so far in 2023, returns for both emerging markets debt and equity have outperformed their U.S. peers thanks to a number of tailwinds, including China's re-opening, improved risk sentiment, and dollar weakness.

And with EM GDP growth rates poised to outpace those of advanced economies over the next several years, Malik believes the EM landscape appears appealing.

Within EM debt markets, Nuveen is focused on countries that raised rates earlier, and is some cases, more extensively than the U.S. Fed.

As for equities, Malik says that EM valuations are "well below their long-term averages and remain inexpensive relative to the U.S., while forecasted EPS growth estimates over the next few years are notably more attractive than developed market counterparts."

Malik admits that as 2023 kicks off, EM companies carry negative earnings estimates. However, she believes that with renewed optimism over China, and the potential for improvement along the geopolitical front, consensus forecasts may prove to be too conservative.

(Terence Gabriel)



U.S. stock indexes are posting small changes early on Tuesday after wage growth data pointed to easing inflation ahead of the Federal Reserve's decision on interest rates.

Additionally, since the open, both Chicago PMI and consumer confidence both missed estimates.

The Nasdaq .IXIC is posting the biggest rise, up around 0.5%, while the DJI .DJI is around flat. This, as traders may be in wait and see mode ahead of the results of the latest FOMC meeting at 2 pm EST Wednesday. That said, according to the CME's FedWatch Tool, markets essentially see a 25 basis point hike as a done deal at 99.8%.

Meanwhile, the S&P 500 .SPX and Nasdaq .IXIC are both on track for their biggest January rises since 2019.

(Terence Gabriel)



The S&P 500 has bounced back nearly 5% in the first month of 2023, the question is - does this rally have legs?

J.P.Morgan global strategists believe the year-to-date rally is likely to fade as recession risks are merely postponed and not diminished.

"Fundamental confirmation for the next leg higher might not come, and instead markets could encounter an air-pocket of weaker earnings, activity, and capex," JPM strategists, led by Marko Kolanovic, wrote in a note.

This week is packed with catalysts - including the U.S. Federal Reserve's rate-setting meeting, earnings from mega-cap companies Apple AAPL.O, Alphabet GOOGL.O and Amazon.com AMZN.O, and the pivotal monthly jobs report - that could dictate market moves in the near-term.

Positioning in options markets isn't pointing to a very bright outlook either, according to analytics firm Spotgamma.

The recent market climb has been driven by the short dated options trade and short stock covering which generates a lot of pretty 'breakout charts' as it adds to an illusion of fundamental strength, said Brent Kochuba, the founder of SpotGamma.

Traders were net sellers of U.S. equity call options last week, with most of the flow concentrated in very short dated activity, Spotgamma noted.

"There seems to be a perception that this giant bull market is about to launch, but we feel a lot of that is ultra-short term momentum," Kochuba added.

For example, traders buying calls in Tesla TSLA.O are in for the daily momentum chase and therefore closing positions shortly after buying. Traders do not appear to be trying to position for the second quarter and beyond, Kochuba explained.

Further, it appears the tail that is not being hedged is hawkishness from the Fed, Kochuba added.

"From an options positioning perspective the market seems prone to a real sucker punch. This does not mean (Fed Chair Jerome) Powell delivers one, but it seems that outcome is underpriced."

(Medha Singh)



The U.S. House of Representatives passed a bill last Friday limiting the ability of the energy secretary to tap the strategic petroleum reserve (SPR) except in emergencies.

Republican backers of the bill said the Biden administration acted recklessly in selling 180 million barrels from the reserve last year, in the biggest release ever. That drawdown and others Biden approved have pushed the level of the SPR to its lowest level since 1983.

The Biden administration had said it acted to counter high gasoline prices in the wake of Russia's invasion of Ukraine.

Earlier last week, energy Secretary Jennifer Granholm said that President Biden will veto the bill if it ultimately passes Congress.

On December 9, NYMEX crude futures CLc1 hit a low of $70.08 before snapping higher. A week later, on December 16, the U.S. Energy Department said it would begin buying back oil for the SPR. More specifically, last October, The White House said it would buy back oil at or below about $67-$72 per barrel.

On December 9, the futures bottomed at 1.09x the value of their 200-week moving average (WMA). Since the early 1990s, this long-term moving average has acted as a powerful magnet in crude sell offs:

Crude futures are now trading around $77.00, with the disparity at 1.17x.

It may remain an open question whether crude hits President Biden's buy level. However, traders are still focused on whether the 200-WMA, which now resides just below $66.00, and is rising around 5-10 cents per week, will continue to work its magic as a powerful magnet.

Meanwhile, the S&P 500 energy sector .SPNY is just over 7% below its 2014 record intraday high.

(Terence Gabriel)




(Terence Gabriel is a Reuters market analyst. The views expressed are his own)


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