Stocks rally on oil plunge and soft PPI report, airlines surge,bitcoin trapped

US stocks are getting a boost from a trifecta of reasons: economic and political pressure grow for a Russian ceasefire, oil prices plunge, and after both a softer-than-expected PPI report and a disappointing Empire survey supports the idea that the Fed won’t have to be aggressive with tightening policy over the next few meetings. The S&P 500 index was getting dangerously close to the lows seen at the initial stock market selloff when Russia invaded Ukraine just over two weeks ago. The S&P 500 looks like it will hold the 4,100 level leading up to the FOMC decision.

The Fed will raise rates by 25 basis points and signal that this is the beginning of a series of hikes.  With an uncertain outlook over the medium-term, the Fed will hold off committing any additional beyond 5 hikes for the year.  There is no benefit to overcommit on tightening expectations given all the geopolitical risk and inflation uncertainty that is on the table and potential recession risk from abroad.

Equities tentatively pared gains after President Putin told European Council President Michel that Ukraine “is not showing a serious attitude toward finding mutually acceptable solutions.”

Airlines outlook looks rosy

Shares of airline stocks are celebrating the collapse of oil prices and robust domestic demand for travel.  Delta and Virgin anticipate little impact from the war in Ukraine with North Atlantic travel.  Southwest is maintaining a profitable forecast for the remaining three quarters, while JetBlue is noticing a strong demand for UK-US travel.  International travel may struggle given China’s COVID surge and Europe’s economic uncertainty, but the domestic airlines should outperform.

Bitcoin

Bitcoin remains trapped in a tight range despite improving sentiment for risk. The surge in Treasury yields higher over the past week has handcuffed bitcoin and tomorrow’s FOMC decision should open the doors for a massive move.  Bitcoin’s ceiling has been the USD 45,000 level and that could be tested if the Fed seems positioned to take a more gradual approach with tightening.

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