North American News
Closing levels: US equities chop sideways even as bond yields continue to rise
- Closing changes for the main US equity markets
- S&P 500 -14 points to 3735 or -0.4%
- Nasdaq +0.2%
- Russell 2000 -0.3%
- DJIA -0.5%
- Toronto TSX Comp -0.9%
US stocks opened higher and made a decent push to the upside just after lunch in New York. The sellers hit shortly after that and stocks fell to the lows of the day. A late rebound erased that damage and the market closed near unchanged. That was at least a bit of stabilization after the 4% plunge yesterday and it comes with more hefty moves in bonds.
- 2-year +15 bps to 3.426%
- 5-year +12.8 bps to 3.59%
- 10-year +12 bps to 3.48%
- 30-year +6 bps to 3.43%
US May PPI +10.8% y/y vs +10.9% expected
- US May PPI data
- Prior was +11.0% y/y
- PPI +0.8% m/m vs +0.8% expected
- Ex food and energy +8.3% y/y vs +8.6% expected
- Ex food and energy+0.5% vs +0.6% expected
- Ex food, energy and trade +6.8% y/y vs +6.9% prior
Commodities
Gold Price Forecast: XAUUSD remains below the 200-DMA hovering around $1810s before Fed’s decision
- Gold spot slides for the second consecutive day and extends its weekly losses to 3.12%.
- Higher US Treasury yields and real rates weigh on the appeal of the yellow metal.
- Gold Price Forecast (XAUUSD): Remains downward pressured, and a break of $1800 to open the door for a challenge of the YTD Low at around $1780.
Gold spot (XAUUSD) grinds lower in the midday of the North American session, down by 0.27%, as the US Dollar continues printing fresh 20-year highs on Tuesday, weighing on the non-yielding metal appeal as US Treasury yields rise. At the time of writing, XAU/USD is trading at $1812.24 a troy ounce.
In the meantime, the US Dollar Index, a measure of the greenback’s value vs. a basket of peers, rises by 0.16%, sitting at 105.379, underpinned by the yields of US Treasuries. Reflection of the aforementioned is the 10-year benchmark note rate at 3.439%, up 6.8 bps.
Risk-aversion extends for the second consecutive day, as reflected by the bloodbath in global equities. On Monday, near the Wall Street close, reports emerged that the US Federal Reserve might hike 75 bps the Federal Funds Rates (FFR) on Wednesday as a response to last Friday’s hot US CPI of around 8.6%. Traders are braced for an upward move, as shown by the CME FedWatch tool, which sits at a 96.1% chance of a 0.75% rate increase.
Therefore, Gold prices are due for a further correction lower. Commerzbank analysts, in a note, wrote, “Gold is facing headwind from the persistently firm US dollar and, above all, from the further rapid rises in bond yields. Yields on two-year US Treasuries have surged by around 30 basis points. Yields on ten-year US Treasuries climbed for a time above 3.4%, their highest level in more than eleven years. As a result, real interest rates have also picked up significantly and at 0.68% now find themselves at their highest level in over three years.”
At the time of publishing, the US 10-year Treasury Inflation-Protected Securities (TIPS), which are also a proxy for real rates, sit at 0.803%, extending its gains, spurring a fall in Gold spot (XAUUSD) towards a daily ow at $1807.65
Before Wall Street opened, the Producer Price Index (PPI) for May, rose by 10.8% YoY, in line with expectations, and up 0.5% from April. The market players’ reaction was muted as investors focused on Wednesday’s Retail Sales in advance of the Federal Reserve Open Market Committee (FOMC) monetary policy decision.
Gold Price Forecast (XAUUSD): Technical outlook
On Monday, XAU/USD prices collapsed sharply below the 200-day moving average (DMA) and broke below a 4-year-old upslope support trendline that passed around July 15, 2021, high at $1834, a significant support/resistance level for gold traders, exacerbating the fall towards the $1820 area.
That said, the XAU/USD first support level would be the May 18 low at $1807.23. Break below would expose the $1800 psychological level, which, if it gives way, XAU/USD bears could prepare an attack towards the YTD low at $1780.18.
Natural gas implodes after Freeport LNG warns that full restart won’t come until late-2022
- The plant was hit by an explosion last week
The global liquefied natural gas market is set to tighten considerably after the Freeport LNG fire last week.
Hopes for a relatively quick restart were dashed by the company today, which said it hopes for a ‘partial’ restart in 90 days and that full operations won’t resume until ‘late 2022’.
The plant exports 2 billion cubic feet per day of LNG out of about 15 Bcf total in the US.
Instead of being exported, that gas will now remain at home in the US. It will help to loosen the domestic market but will tighten global LNG, meaning higher prices in Europe and Asia.
Company statement:
on June 8, 2022, an incident occurred at the Freeport LNG liquefaction plant on Quintana Island, Texas that resulted in the release of LNG, leading to the formation and ignition of a natural gas vapor cloud, and subsequent fire at the facility. As reported previously, there were no injuries, and at no time did the incident pose a threat to the surrounding community. In accordance with Freeport LNG’s safety design parameters, the LNG vapor cloud dispersion and ignition thereof were at all times contained within the fence line of the liquefaction facility, lasting approximately 10 seconds. The fire and associated smoke visible thereafter were from the burning of materials in and around the location where the incident occurred, such as piping insulation and cabling.
Preliminary observations suggest that the incident resulted from the overpressure and rupture of a segment of an LNG transfer line, leading to the rapid flashing of LNG and the release and ignition of the natural gas vapor cloud. Additional investigation is underway to determine the underlying precipitating events that enabled the overpressure conditions in the LNG piping.
At this time, completion of all necessary repairs and a return to full plant operations is not expected until late 2022. Given the relatively contained area of the facility physically impacted by the incident, a resumption of partial operations is targeted to be achieved in approximately 90 days, once the safety and security of doing so can be assured, and all regulatory clearances are obtained.
Oil falls $5 from the session high to settle at $118.93
- WTI crude oil down $2 on the day
WTI crude oil touched a fresh high since 2008 today at $123.68 but has since turned around in rapid fashion and trading at $118.67.
Headlines have been mixed. Libya reported lower production than expected.
The 16% slump in natural gas came after Freeport LNG reported it could take months to get production fully back online. That will mean more gas-to-oil switching for power generation in Europe and Asia.
The economic side is where the trouble starts as a recession would undermine demand. With Biden visiting Saudi Arabia next month, there’s also growing speculation that the Kingdom will announce higher production for Sept or beyond.
We get the latest API private inventory data shortly after the US equity close and EIA US official inventories are due tomorrow. Crude has risen in 7 straight weeks so a more-sustained decline certainly wouldn’t be out of the ordinary. In the shorter term, the area around $117 to $117.50 has held in the past two weeks.
EU News
European equity close: Periphery struggles ahead of fragmentation speech
- closing changes for the main European bourses
- Stoxx 600 -1.2%
- German DAX -0.9%
- UK FTSE 100 -0.2%
- French CAC -1.1%
- Spain IBEX -1.5%
- Italy MIB flat
Other News
Redfin asks about 8% of its employees to leave today
- May demand about 17% below expectations
One of the driving forces behind inflation has been the cost of housing and rents, along with the wealth effect that comes with it, and the instability that potentially could cause if the bubble breaks.
Redfin, the large real estate brokerage company, has asked about 8% of its employees to leave today. The site a 17% below expectations demand in May. They also said they don’t have enough work for agents and support staff.
Finally the anticipate that they could be facing years not months of fewer home sales.
Not a good omen for home prices going forward.
Looking at lumber futures (a proxy for the housing market), the price is trading to the lowest level since September 2021 today, and in the process is moving further away from its 200 week moving average. Last week, the price moved and closed below that moving average for the 1st time since August 2021.
Cryptocurrency News
This is how low Bitcoin price can go
- Bitcoin price got slaughtered, with its most significant decline for 2022.
- BTC price saw bears pierce through critical support levels and breaking the backbone of any bullish resistance.
- Expect to see a further drop as the earliest support is sub $20,000.
Bitcoin (BTC) price is in a tight spot, and subject to some ferocious moves in markets where every asset class has seen outflows of money. Unfortunately, risk assets like cryptocurrencies and stocks have sold off more than bonds and commodities, with only one victory in the forex market: the US dollar. Apart from some dip-buying, which is not likely to be a match for the current bearish pressures dominating markets, price action is likely to simply run further down as the predominant themes are unlikely to fade anytime soon.