LIVE MARKETS-BofA clients buying U.S. equities in droves

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BOFA CLIENTS BUYING U.S. EQUITIES IN DROVES (1301 EDT/1701 GMT)

BofA Securities clients were big buyers of stocks last week with flows again ranking among the highest levels on record.

Clients were net buyers of $2.8 billion of U.S. equities, marking the third straight week flows registered in the 90th percentile of data history going back to 2008, according to a BofA Global Research Equity & Quant Strategy report.

Inflows over the last three weeks were the largest since the three-week period after the market bottomed last March, strategist Jill Carey Hall wrote in the note.

Hall reiterated, however, that such "extreme" inflows are typically a signal of weak near-term returns and another sign of increasing euphoric sentiment.

Net buying last week was driven by hedge funds (six-month high), she pointed out. Private/retail clients were small buyers, while institutional clients sold the most in nearly two months.

From a sector perspective, tech .SPLRCT and consumer discretionary .SPLRCD saw weekly inflows near record levels for the third consecutive week. And reflation sectors materials .SPLRCM and energy .SPNY were also bought, she said.

Interest rate sensitive financials .SPSY caught a smaller bid, while communication services .SPLRCL, likely to be hurt by rising rates, Hall added, saw a fifth straight week of outflows.

In other flows, corporate buybacks picked up steam, Hall said, adding that tech continues to dominate, but trends have begun to broaden out to other sectors.

(Lance Tupper)

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FED FOR THOUGHT: IT'S ALL ABOUT THE FORECASTS (1203 EDT/1603 GMT)

Daniel Ahn, Chief U.S. Economist and Head of Markets 360 North America at BNP Paribas, is commenting on what to expect from today's FOMC Meeting.

Ahn says he does not expect the FOMC to take any major policy action, or make changes to its forward guidance on target rates or asset purchases.

Instead, he believes what's key is the Fed’s updated forecasts, which should show "significantly higher growth, somewhat higher inflation and lower unemployment."

While a close call, he expects movement in the median dot plot to indicate a rate hike in 2023.

With this, Ahn says Chair Powell faces a "tricky messaging challenge to balance acknowledgment of the improving outlook and higher nominal rates, while defending the current policy stance and the credibility of the Fed’s asymmetrically dovish strategy."

As for the stock market, BNP's base case is that equities and rates could continue to grind higher. However, they caution that a quicker, or more volatile bond-market sell off, could negate this thesis.

In the event the Fed is seen as less dovish, equities would also be vulnerable. However, Ahn says any correction would "likely be shallow and short-lived."

(Terence Gabriel)

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HOUSING STARTS, MORTGAGE DEMAND: SHOVELS HIT FROZEN GROUND (1100 EDT/1500 GMT)

The U.S. housing market found itself poorly insulated against the brutal winter weather of February, which also put a (hopefully temporary) chill on the broader economic rebound.

For months, the sector has been blithely zooming along the upward trajectory of a k-shaped recovery, as the pandemic sent Americans fleeing for the suburbs in search of low population density and home office space.

But that spike in demand, further fueled by low mortgage rates, has created potential headwinds in the form of record low inventories, rising materials costs and strained affordability.

Groundbreaking on new U.S. homes USHST=ECI dropped by 10.3% in February to 1.421 million units at a seasonally adjusted annualized rate (SAAR) according to the Commerce Department, 139,000 fewer than the consensus estimate.

The number extends January's 5.1% decrease.

Building permits USBPE=ECI, a more forward-looking indicator, unexpectedly fell 10.8% to 1.682 million units SAAR, reversing the previous month's 10.7% growth and missing estimates by 68,000 units.

As the ground thaws, those pesky headwinds remain.

"We expect the pace of housing starts to moderate in 2021 as homebuilders confront constraints including high lumber prices and shortages of lots and labor," writes Nancy Vanden Houten, lead economist at Oxford Economics. "However, we think the February data overstates any actual weakness in the housing market."

In more recent data, demand for home loans fell by 2.2% last week as low interest rates continue their upward creep, according to the Mortgage Bankers Association (MBA)

The average 30-year fixed contract rate USMG=ECI gained two basis points to 3.28%. And while demand for loans to purchase homes USMGPI=ECI inched up 2%, that gain was offset by a 4% drop in refi applications USMGR=ECI, which accounted for 62.9% of the total.

Still, purchase loan demand notched its third straight gain, a good omen for the market as winter turns to spring.

"The latest increase in purchase applications comes as we approach the critical spring home buying season," Vanden Houten adds. "The rise indicates that there is still demand for housing despite sharply higher home prices and the recent backup in mortgage rates."

The housing sector's remarkable run has also been reflected in the stock market.

The Philadelphia SE Housing index .HGX, which had been underperforming the S&P 500 .SPX just prior to the pandemic, has since performed remarkably better than the broader stock market, as seen in the graphic below.

The HGX is last off by 0.8% on Wednesday.

The question then, is how long can the cheeky sector remain in the spotlight?

Investors took little heed of the data, focusing instead on the Fed, which wraps up its two-day monetary policy meeting this afternoon.

Stocks are mostly lower, with the Nasdaq .IXIC and S&P solidly red, and blue chip Dow .DJI hovering near the flatline.

(Stephen Culp)

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U.S. STOCKS MIXED AHEAD OF FED; GREENS SEE RED (1012 EDT/1412 GMT)

U.S. stocks are mixed early on Wednesday. This as bond yields spike ahead of the Federal Reserve's policy statement at 1400 EDT/1800 GMT, which could provide hints on whether the central bank would raise interest rates sooner than expected. .N

The U.S. 10-year Treasury yield US10YT=RR hit 1.6760%, or its highest level in more than a year.

With this, high-P/E growth stocks are on the back foot again. The NYSE Fang+TM index .NYFANG is down around 0.6%, and tech .SPLRCT is among the weakest major S&P 500 .SPX sectors.

More cyclical groups such as banks .SPXBK, financials .SPSY, energy .SPNY and industrials .SPLRCI are green. Growth .IGX is underperforming value .IVX.

Not surprisingly, the Nasdaq Composite .IXIC is the weakest major index, down around 0.8%. The Dow Industrial Average .DJI is clinging to a slight gain.

Under the surface, green energy stocks are especially weak. Plug Power PLUG.O announced it is restating its financial results. nL4N2LE4O1 The WilderHill Clean Energy index .ECO is down more than 2%.

Here is your early trade snapshot:

(Terence Gabriel)

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ANOTHER ONE STAYING BULLISH ON EUROPEAN BANKS (0953 EDT/1353 GMT)

With yields on the rise, it looks like more and more brokers are feeling the urge to reiterate their bullish stance on the European bank space.

After the recent upbeat views from Credit Suisse, Morgan Stanley, and BofA, this time it's JP Morgan to affirm its positive stance on the rate-sensitive sector. nL1N2LE0L0

"Despite 30% outperformance since turning positive in Oct-20. We see further 10% re-rating potential," they say, sticking to their overweight rating.

There is a novelty though, namely they start to shift their portfolio toward dividend plays.

"We shift our barbell portfolio of asset gathering and low P/BV stocks post the material re-rating, with a continued preference for asset gathering alongside an increased quality element and more importantly, increased dividend exposure"

(Danilo Masoni)

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S&P 500: THIN AIR AND SPUTTERING THRUST? (0900 EDT/1400 GMT)

Since bottoming in early March, the S&P 500 .SPX quickly climbed to fresh record highs. But ahead of today's results of the latest FOMC Meeting, CME e-mini S&P 500 futures EScv1 are suggesting the benchmark index is poised to dip at the open.

From early 2018 to early 2021, the S&P 500 has seen six instances of making new highs and then ultimately suffering a sell-off of more than 5%. On average, the index extended just 5.5% above its prior peak, over a 27 week period:

In the six declines of more than 5%, between late 2018 and early 2021, the average was 14.4% over about five weeks.

In the two weeks since the most recent low, the SPX has only managed to extend about 0.8% above its mid-February peak. Although minimal, that is slightly greater than the 0.5% extension into the May 2019 high.

Meanwhile, weekly momentum measures are diverging. As it stands, just since early January, the RSI is potentially forming a third lower peak. The current reading, as was the case in mid-February, is failing to muster enough strength to push above the 70.00 overbought threshold. This lack of thrust can put the SPX at risk for a reversal. nL1N2LE0ZC

In the event of another sharp decline, a weekly close below the support line from the late-2018 high, now around 3,745, or 5.9% below this week's high, can suggest potential for a much more severe sell off.

Since the SPX closed above it in early December of last year, this line has continually contained downside turns on a weekly closing basis.

(Terence Gabriel)

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FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE: nL1N2LF116

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