An ‘All Right’ rebound was quickly faded, cryptos get a Super Bowl win

Wall Street remain jittery over Ukraine crisis

US stocks tentatively rebounded on optimism that the Ukraine-Russia crisis will avoid a war after the Russian Foreign Minister Lavrov said they will engage further diplomatically.  Lavrov proposed to President Putin that Russia continue talks with the West and Putin answered, ‘all right’. The geopolitical risks still remain elevated as Russian troops remain at the Ukrainian border, but the risk of military conflict happening this week appears to have eased.

The risks to the US stock market outlook are concentrated to the first half of the year and that should suggest it will be a choppy ride until Wall Street feels confident that the Fed won’t make a policy mistake and overly tighten policy.

US stocks gave up earlier gains as investors can’t become optimistic just yet over economic growth outlooks, stock market valuations, and the risk of a Fed policy mistake. It seems unlikely that the Ukraine situation will be resolved anytime soon and that should just fuel the inflationary argument as oil prices continue to rally. Stocks returned back to session lows after CBS reported that Russian units near Ukraine moved into attack positions. Investors gave up whatever short-term optimism they had after reports that Russian long-range artillery and rocket launchers had moved into firing positions.

Wall Street will be headline-driven and it appears risk appetite won’t fully return until Russian troops move away from the border.

Fed

Over the weekend, Fed’s Daly showed a more conservative approach towards rate hikes, calling for a measured approach in its path to raise rates. She reminded markets that an abrupt and aggressive move could have a destabilizing effect on growth and price stability.

Today’s key Fed comment came from James Bullard, an outspoken hawk who wants the Fed to act aggressively.  Bullard has been calling for quick rate rises, adding that the Fed’s credibility is on the line here. Bullard wants to see a full percentage point increase by July 1^st.

The Fed hawks want to front-load their tightening cycle with a 50 bps increase in March, but the doves will unlikely be swayed as they want to save their ammunition in case inflation does not show clear signs of peaking throughout March and April.

The NY Fed survey showed inflation expectations were lower in January, the first decline in short-term inflation expectations since October 2020.  The argument for a half-point Fed rate hike in March is slowly weakening.

Cryptos

The Los Angeles Rams were not the only ones who were at the Super Bowl: crypto commercials played a big part in Sunday’s Super Bowl broadcast.  FTX, Coinbase, Crypto.com and Etoro all had Super Bowl ads that reminded Wall Street that the cryptoverse is about to get a lot bigger.  The FTX Super Bowl commercial with Larry David was brilliant and provided a justification for those that have gotten into crypto and perhaps a reminder for others they should be considering it.

Pressure is growing in NY to ease up crypto regulation in fear of lost business opportunities.  17 states have passed crypto laws and further regulatory guidelines will mostly be positive for growth for the entire space.  At the end of last week, Billionaire Ackman argued for NY Governor to ease up on crypto barriers.

Bitcoin appears to be stabilizing, which is good news considering how significantly Treasury yields are rallying.

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