North American News
The close: Some buying after the FOMC minutes
- Closing changes for the main equity markets
- S&P 500 up 14 points, or 0.5%, to 3845
- Nasdaq up 0.4%
- Russell 2000 down 0.8%
- DJIA up 0.2%
ISM June non-manufacturing index 55.3 vs 54.3 expected
- Service sector survey for June 2022
- Prior was 55.9
- Prices paid 80.1 vs. 82.1 last month
- Employment 47.4 vs. 50.2 last month
- New orders 55.6 vs. 57.6 last month
- Production 56.1 vs. 54.5 last month
- Supplier deliveries 61.9 vs. 61.3 last month
- Inventories 47.5 vs. 51.0 last month
- Backlog of orders 60.5 vs. 52.0 last month
- Exports 57.5 vs. 60.9 last month
- Imports 46.3 vs. 52.8 last month
US final services PMI from S&P Global 52.7 vs 51.2 prelim
- Services sector survey from S&P Global
- Prelim was 51.6
- Prior was 53.4
- Composite PMI 52.3 vs 51.2 prelim
- Business confidence for the year ahead at 21-month low
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
“June saw signs of a broad-based weakening of the economy with demand now falling in both the manufacturing and service sectors. While the survey data point to a stalling of GDP at the end of the second quarter, a downshifting in the forward-looking new orders index and drop in companies’ future output expectations hints at falling economic activity as we head through the summer.
Commodities
Gold Price Forecast: XAU/USD bulls are advancing from over the horizon
- Gold has extended its downside into fresh bear cycle lows as the US dollar soars.
- Meanwhile, the price is reaching a key area on the daily chart where bulls will likely emerge.
At $1,739.31, the gold price is underwater by some 1.4% in the North American afternoon session and after the release of the Federal Open Committee Minutes which underpinned the prospects of a 50 or a 75 basis point interest rate hike at this month’s meeting.
The minutes failed to energise what has turned out to be a relatively quiet session on Wednesday although stocks on Wall Street have risen with the S&P 500 now over 0.6% higher for the day. US stocks gyrated ahead of the minutes but have moved higher given that there was little in the detail that ensures an uber hawkish path in the latter half of the year.
Additionally, the minutes did not necessarily cement another sure 75 basis points as soon as July, leaving just a 50bp rate hike on the table still as well. While the minutes don’t mention the word “recession,” there was an acknowledgement that the interest rate hikes could have a bigger than anticipated dampening effect on the economy. Another hike this month was flagged but the Fed’s chairman, Jerome Powell, would not commit to another 75 bp move in the presser at the June meeting.
However, according to CME Fed watch, the markets now see a 90.3% probability of another interest rate hike of at least 75 basis points at the conclusion of this month’s two-day meeting, the last such meeting on the date book until the fall. This has supported the greenback which rose to fresh 20-year highs on Wednesday, sinking the euro that has tumbled to a new two-decade low. The dollar index (DXY), which tracks the greenback versus a basket of six currencies, burst through 107 the figure, sending the euro below 1.0200 vs the greenback for the first time since December 2002.
Fed bets tailing off?
Looking forward, the US dollar could struggle to extend gains in the Fed expectations alone, for which 50 bp hikes at the subsequent meetings November 2 and December 14 are moving towards 25 bp. Analysts at Brown Brothers Harriman explained that WIRP shows the beginning of an easing cycle by Q1 23. ”This is a much earlier timeframe for easing and one that we think is very, very premature since it would imply a recession hitting near the end of this year or early next year. The swaps market is now pricing in 175 bp of tightening over the next 6 months that would see the policy rate peak between 3.25-3.50%.”
Nevertheless, as analysts at TD Securities explained, ”gold is being weighed down by substantial CTA trend followers.” The analysts explained that ”the massive amount of speculative length from proprietary traders in the yellow metal also appears complacent, given that this length was accumulated as early as 2020. In turn, they said, this ”suggests the bias remains to the downside in gold.”
Oil is caught in the vortex again as it nears $95
- WTI crude falls hard for the second day
An early bounce in oil today has been completely snuffed out.
WTI crude is down $3.50 per barrel to $96.05 after falling as low as 95.65.
Oil is testing a zone of technical support that runs from $95 down to $92. The lower end is the confluence of the April low combined with the 200-day moving average. That should attract some buyers, especially given sharply-oversold short-term conditions.
EU News
European equity close: Solid rebound with 1.3%-2.1% gains
- Closing changes for the main European bourses
European stocks closed on the lows yesterday but the turnaround in US stocks a day go prompted a catch-up trade:
- UK FTSE 100 +1.3%
- Stoxx 600 +1.8%
- German DAX +1.7%
- French CAC +2.1%
- Italy MIB +1.3%
- Spain IBEX flat
Scholz calls a spade a spade
- No mincing words from the German leader
German chancellor Scholz underscored that with his latest comment. He said that Russia is using energy as a political weapon and that “no one believes in technical problems with supply problems.”
I think that’s a powerful statement because Scholz and his government would have good access to reports on exactly the purported problem that Russia is citing and whether it’s real or not.
German year-ahead power prices are at a record 322 euros/MWh, a level that will cripple large swaths of German industry. A heat wave also isn’t helping.
In any case, I don’t think the market really believes that Russia will cut off Europe yet, or at least it’s not fully priced in. If it happens, a brutal recession is guaranteed and it will take the conflict to new levels.
Other News
IMF’s Georgieva says outlook has ‘darkened significantly’ since April
- Georgieva says she can’t rule out a global recession
- Can’t rule out 2023 global recession
- Outlook has darkened significantly since last IMF economic update in April
- Will downgrade 3.6% GDP global growth forecast for 2022 and 2023
The #1 worry right now is European energy and electricity prices. If Russia cuts off the gas, we could be seeing a crushing recession in Europe that will spill out from there.
Cryptocurrency News
Goldman Sachs entry into the Bitcoin futures market signals Armageddon
- Bitcoin price coils in a sideways triangular trading range.
- Goldman Sachs rumored to have opened their first BTC futures and options position.
- Invalidation of the bearish downtrend is a break and close above $21,868.
Bitcoin price shows technical reasons to believe in one more decline. Goldman Sachs’ entrance into the crypto market is a strong indication of a big move to come.