North American News
NASDAQ index falls another 3%+ on the day
- All FAANG stocks in bear territory now
Another we close for the NASDAQ index. It is closing down -373 point -3.18%. In addition the FAANG stocks are now all in bearish territory as Apple is now down over 20% from its all-time high.
- The NASDAQ index is closing down -29.9% from its all-time high.
- The S&P index is down -18.33%
- The Dow industrial average is faring the best with a decline of -13.85% from its all-time high
For the day:
- Dow industrial average is down -326.63 points or -1.02% at 31834.10
- S&P index is down -65.85 points or -1.65% at 3935.19
- NASDAQ index is down -373.43 points or -3.18% at 11364.25
- Russell 2000 is down 43.64 points or -2.48% at 1718.14
After the close Disney has reported their earnings.
- Revenues $19.25 billion versus $20.03 billion
- earnings-per-share $1.08 versus $1.19 estimate
- Q2 subscribers 137.7 million versus 135 million estimate
U.S. Treasury auctioned off $36 billion of 10 year notes at a high yield of 2.943%
- WI level at the time of the auction was 2.929%
- High yield 2.943%
- WI level ahead of the auction was 2.929%
- Bid to cover 2.49X versus 2.48X 6 month average
- Tail 1.4 vs the six month average of 0.5 basis points
- Directs 18.21% vs six month average of 16.6%. Directs are a measure of domestic demand.
- Indirects 70.3% vs six month average of 69.2% Indirects are a measure of international demand
- Dealers 11.49% vs six month average of 14.2%
The bid to cover was average. The directs and in directs were above average, but that came at the concession of a 1.4 basis point tail which was above the six month average of 0.5 basis points.
Commodities
Gold Price Forecast: XAU/USD bears firming at critical 38.2% Fibo daily resistance
- The price of gold is trying to correct from daily support.
- Bullish correction eyed towards M-formation neckline but bears lurk at a daily 38.2% Fibo.
- US CPI was regarded as a meanwhile relief for financial markets.
At the time of writing, the gold price is some 0.8% higher and correcting from daily support located in the lows of the day at $1,832.07. At $1,853.40, gold is close to the day’s highs of $1,858.30. The markets have been centred around US inflation on Wednesday when the Consumer Price Index was released earlier in the North America session.
While the US inflation data reinforces a hawkish sentiment from the Federal Reserve and justifies front loading called for by the Fed’s chairman, Jerome Powell, markets were relieved that the data showed a decline in CPI on an annual basis.
CPI climbed 8.3%, higher than the 8.1% estimate but below the 8.5% in the prior month. Also, the index rose just 0.3% last month, the smallest gain since last August, the Labor Department said on Wednesday, versus the 1.2% MoM surge in the CPI in March, the most significant advance since September 2005.
The dollar index, DXY, moved sharply off its lows on the knee jerk as the data came in higher than expected, so it was unlikely to cause the Federal Reserve to adjust its aggressive path of monetary policy. DXY, which hit a four-session low of 103.37 ahead of the report, immediately strengthened to a session high of 104.13 in the wake of the data.
However, the rally came in short of the 20-year high of 104.19 reached on Monday and traders were quick to move in again and sell the US dollar to a fresh season-low of 103.372 before making its way back towards the session highs in a firm but slow bullish drift.
US stocks back under pressure
Markets have digested the data that shows that inflation has slowed, and underlying price pressures remain elevated which is weighing on investor sentiment and US stocks.
”The fact that the CPI is driven by rents and services implies that price pressures are entrenched and may manifest in upward pressure on wages too,” analysts at TD Securities argued. ”This likely means gold traders will expect the Fed to step up their hawkish signals.”
The Dow Jones Industrial Average fell 0.8% giving up earlier gains. The S&P 500 slid 1.3% after increasing 0.5% earlier in the session. The Nasdaq Composite dropped 2.5% and is currently extending intraday declines while the 2-year yield increased to 2.857% and is aligned closely with Federal Reserve’s interest rate policy.
”The positive surprise in core prices will not be favourable for currencies not named the US dollar. We think the market is far too premature in reducing the Fed’s optionality set for tightening. This should leave the USD resilient for now,” analysts at TD Securities said.
The bearish outlook for gold
”Given that positioning is still tilted to the long end of exposure, continued higher-than-expected price prints could easily send gold below $1,830/oz in the not too distant future. Higher nominal and real rates along with less liquidity due to QT are the likely financial market catalysts driving gold,” the analysts at TD Securities explained.
”If prices dip below the $1,830s support levels, technicians could pull the yellow metal down toward the $1790s fairly quickly.”
Silver Price Analysis: XAG/USD drops back under $21.50 after hotter than expected US inflation figures
- Silver prices have pulled lower from earlier highs near $22.00 following hotter than expected US inflation data.
- XAG/USD is back under $21.50 and eyeing a move to fresh multi-year lows under $21.00 as hawkish Fed bets build.
Spot silver (XAG/USD) prices have fallen back sharply from earlier session highs in the upper $21.00s per troy ounce and are now back to trading back under the $21.50. At current levels in the $21.40s, on-the-day gains have now been pared to about 1.0%. Just released US Consumer Price Index data showed a slower than expected moderation in the YoY rate of headline price pressures and a larger than expected jump in MoM Core price pressures in April.
The US dollar and US yields jumped as a result and this explains the recent pullback in XAG/USD. Some traders had been hoping for a moderation in inflation pressures to ease the pressure on the Fed to tighten monetary policy so aggressive this year and next. The latest data certainly doesn’t do that, hence the rebuilding of some hawkish Fed bets.
After breaking out to its lowest levels under $21.20 since mid-2020 on Tuesday, XAG/USD attempted rebound has been cut short. Should the US dollar and yields continue to press higher, a drop towards $21.00 certainly seems on the cards. A break lower would open the door to an eventual drop to the next area of key support under the $20 mark.
US crude gains nearly $6 in another tour-de-force. What’s next?
- What does the bid in crude mean?
There were two main pieces of fundamental news today: 1) Libya is ending the blockage, which will add some 900k bpd or production, and 2) US oil inventories showed a big surprise build.
On the macro front, US CPI was high, the ECB was more hawkish and the Nasdaq is down another 1.8%. China pushed back against the WHO calling to end its dyanmic covid zero policy. The US is selling 1 million barrels per day from the SPR. Hungary is balking at an EU ban on Russian oil (though there’s been some progress).
Yet here we are with crude up nearly 6%. It’s an incredible flex for the oil bulls.
Granted the rally comes after two days of strong selling from above $110 but oil is now once again positive in the month in what would be the sixth consecutive monthly gain.
On the face of it, the resilience in oil is extremely bullish. Oil is always a macro trade but that can’t fall in this kind of macro backdrop is remarkable.
I can only think of two things:
1) Someone is stockpiling. The Ukraine war has made countries and refineries ultra-sensitive to supply and they’re filling the tanks.
2) The market is undersupplied
The latter is a big problem and one I think that is inevitable. But that it could come with so much China demand offline is almost frightening. If/when they return, where will the barrels come from? What’s to stop a rally to $150 or above?
EU News
Higher closes for the major European indices today
- Solid gains for the indices
The major European indices are closing higher on the day. The German Dax, France’s CAC, Spain’s Ibex and Italy’s FTSE MIB are all up about 2% (or higher) on the day.
The provisional closes are showing:
- German Dax, up 2.1%
- France’s CAC, up 2.5%
- UKs FTSE 100, up 1.4%
- Spain’s Ibex, up 2.1%
- Italy’s FTSE MIB, up 2.8%
Draghi floats the idea of some kind of consumer-cartel to cap oil prices
- Where is Mario Draghi going with this?
Former ECB President and current Italian Prime Minister Mario Draghi continues to head down a strange path with regards to oil prices.
At home, he’s championed a windfall tax on oil and gas companies that’s going to further exacerbate problems with under-investment. It’s a bizarre turn from a free-market capitalist.
Abroad, he’s taking it even step further. He visited the White House this week and spoke with Biden. Energy was evidently near the top of the agenda and he said that both he and Biden agreed that the current structure of the energy market isn’t working.
Draghi then floated the idea of a cap on oil prices. He said the idea is to create a cartel of consumers or to persuade OPEC to produce more.
I have no idea how that would work but I have strong suspicions it won’t work at all.
Other News
The ECB communication offensive continues, this time with a ‘sources’ report
- Officials increasingly see rates rising above zero this year
First we had Lagarde’s call for higher rates.
Then we had Schnabel lay out the case for being more aggressive
Now we have an ‘ECB sources’ report doing the rounds saying officials increasingly see main refi rate rising above zero this year.
The marching orders have been delivered. The ECB is tired of waiting around for inflation to fall on its own and will be hiking at least twice this year.
Normally this would be scope for the euro to rally — and that may yet be the case — but the growth trajectory is so poor in Europe and looming (in 2024, likely) return of fiscal rules makes it a tough place to invest.
Cryptocurrency
Bitcoin testing swing area and 61.8% retracement
- Swing area between $28,600 and $30,044
The price of bitcoin has moved to a low of $29011.10 today and in the process has moved down into a swing area between $28600 and $30044. The current price is at $29814. Also, in that swing area is the 61.8% retracement of the move up from the March 13, 2020 low at $28,737.10.
The high price (and all time high price) reached up to $69000 on November 9, 2021. The price decline from that high to the low today has taken the price down 57.95%. So although the price is still quite a ways from the March 2020 low at $3850, it is also nearly $40000 from the all time high. Anyone who bought and HODLed bitcoin from June 22, 2021 are losing money. Move below that level, and anyone going back to early January 2021 would be losing money. That is 492 days ago.