North American News
US stocks gets spooked by the ghost of tomorrow’s CPI… Major indices close nearer the lows
- Nasdaq down for the 2nd day in a row. S&P and Dow down for the 3rd consecutive day
The major indices got spooked by ghosts of tomorrow CPI data. There was a rumor of an early release showing a 1.7% gain for the headline number, and that helped to push the stocks lower in the last hour of trading (the report looks phony though).
Nevertheless, the White House Memo today also warned about the ugly number tomorrow.
Expectations are for a +1.1% gain. That is scary enough.
The prices of the major indices did bounce off lows, but nevertheless, the S&P and Dow are closing lower for the 3rd consecutive day. The Nasdaq is on a two day losing streak.
Technically, all three major indices closed back below their 100 hour MAs:
- Dow 100 hour MA at 31027.86. Index closed at 30981.34
- S&P 100 hour MA at 3836.17. Index closed at 3818.79
- Nasdaq 100 hour MA at 11306.07. Index closed at 11264.74
The final numbers are showing:
- Dow industrial average fell -192.51 points or -0.62% to 30981.34
- S&P index fell -35.65 points or -0.92% to 3818.79
- NASDAQ index fell -107.86 points or -0.95% to 11264.74
- Russell 2000 fell -3.826 points or -0.22% to 1728.18
US treasury auctions off $33 billion of 10 year notes at 2.96%
- WI level 2.94%
US treasury auctions off $33 billion of 10 year notes:
- High yield of 2.96%
- WI level was at 2.94% at the auction time
- Bid to cover 2.34X vs. the six-month average of 2.50X
- Directs 18.0% vs. six-month average of 17.6%
- Indirects 61.3% vs. six-month average of 68.3%
- The 2 BP tail was higher than the six-month average of 0.7 basis points
Commodities
Gold Price Forecast: XAU/USD gets punished by a strong US dollar, meanders around $1730s
- The precious metals complex remains on the defensive, with gold reaching two-month lows and silver at two-year lows.
- Risk aversion dominates Tuesday’s trading session as investors brace for June’s US CPI report.
- Commerzbank analysts commented that a solid US dollar and gold ETF’s outflows keep XAUUSD heavy.
- Gold Price Forecast (XAUUSD): Tilted to the downside and might test $1700; otherwise, a correction towards $1750 is on the cards.
Gold (XAUUSD) spot declined during Tuesday’s North American session due to risk-aversion, courtesy of China’s coronavirus reemergence, the EU’s energy crisis, and recession fears. That usually lifts the yellow metal price, though haven flows are going towards the greenback and US Treasuries, as US bond yields are falling across the board.
Gold declines on a firm US dollar, a dismal sentiment, and on ETF’s outflows
XAUUSD is trading at around $1731 a troy ounce after seesawing between the high/low of the day during the Asian session. The yellow metal recorded its low around $1722, followed by a rally towards the daily high near $1744, and then gold’s price stayed range-bound within the $1728-1740 for the rest of the day.
Sentiment remains dismal as traders brace for the US inflation report on Wednesday. A day later, prices paid by producers would shed some light on raw materials and commodity prices while shedding some light regarding what could happen during the Q2 earnings season. According to Press Secretary Jean-Pierre, the White House expressed that the new CPI would be elevated.
Additionally fueling investors’ worries is China’s Covid-19 resurgence witnessed the lockdown of Wugang for three days due to 1 Covid case, while Shanghai remains doing massive tests across the city.
Elsewhere, analysts at Commerzbank expressed that a firm US dollar is not the only reason weighing on lower gold prices but also the ongoing and solid ETF outflows.
“The gold ETFs tracked by Bloomberg registered outflows of 29 tons last week, their most pronounced in eight weeks and the fourth week in a row (with growing momentum). Speculative financial investors have likewise been withdrawing further from the gold of late. According to the CFTC’s statistics, their net long positions are at their lowest level in over three years,” Commerzbank analysts wrote.
Silver Price Forecast: XAG/USD hits a two-year low
- Silver slides on safe-haven flows towards US Treasuries as bond yields fall
- The greenback takes a breather after reaching a 24-year high above 108.000, a respite for silver traders.
- The US 2s-10s yield curve screams recession, falling to 2007 levels at around -0.107%.
Silver (XAGUSD) remains on the defensive as Tuesday’s North American session progresses, down by 0.48%, due to increased concerns of the US getting into a recession, as the US 2s-10s yield curve remains inverted at -0.107%, reaching levels last seen in February of 2007.
Silver slides on safe-haven flows towards US Treasuries as bond yields fall
Risk-off dominates the session for a second consecutive day due to some factors. The inversion in the US 2s-10s yield curve deepened, below -0.10%, for the first time since February of 2007, accentuating recession fears that the Fed might tip the US economy into a recession. Also, the reemergence of China’s coronavirus crisis in Shanghai threatens to trigger additional lockdowns.
Silver traders are bracing for the US inflation report. The June Consumer Price Index (CPI) is expected to hit 8.8% YoY, while the core inflation, which excluded volatile items like food and energy, is estimated at 5.7% YoY, lower than May’s reading. In the meantime, the White House (WH) expects CPI to remain elevated, but downplayed recession fears, they said in a memo, as reported by Reuters. They added that the “Impact of energy and food prices on annual headline CPI in June will likely exceed 40%, based on market expectations.” They said the economy “appears” to be transitioning to a slower economic and job growth.
Elsewhere, the US Dollar Index, a gauge of the greenback’s value vs. six counterparts, falls for the first time in four days, down at 107.920, losing 0.27%, while the US 10-year Treasury yield sits at 2.937%, losing six bps.
What to watch
During the week, the US economic docket will feature the US Consumer Price Index and the Beige Book on Wednesday, followed by Thursday’s PPI and Initial Jobless Claims. On Friday, the University of Michigan Consumer Sentiment will portray the American people’s economic expectations.
WTI drops sharply in midday NY trade on demand concerns and China covid lockdowns
- WTI is falling further in the New York session to fresh lows on Tuesday.
- Investors fret over holding commodity longs into economic uncertainty as China goes back into lockdown.
Oil prices continue to sag in the New York day following a brief bid in mid-day trade. The price of West Texas Intermediate crude is carving out a fresh low for Tuesday of $95.47 so far and it is falling with momentum at the time of writing. The US dollar reached fresh 20-year highs on concerns China could enter another round of Covid-19 lockdowns, even as OPEC issued a bullish forecast for 2023 demand, so the demand side is pressuring oil prices.
However, OPEC on Tuesday said it expects 2023 demand to rise, even as production capacity remains limited. In a Monthly Oil Market Report, the group said it expects demand to rise by 2.7-million barrels per day next year to 103-million bpd, as it expects the global economy to rise by 3.2% “supported by a still solid economic performance in major consuming countries, as well as improved geopolitical developments and containment of COVID-19 in China”.
China is set to lock down cities again just weeks after lifting a two-month quarantine on Shanghai that cut the country’s oil demand by more than one million barrels per day. Close to 30 million people are already under some form of movement restrictions as the nation seeks to quell resurgent Covid-19 outbreaks. The nation reported 352 new cases for Sunday, with the daily figure hovering over 300 for the past week, the highest level since late May. Mainland China has had more than 300 cases a day for past nine days.
As for positioning in the oil market, Speculators also have turned more bearish. Money managers cut net-long positions in both Brent and WTI to the lowest level since 2020, according to the CFTC data released Friday as investors fret over holding commodity longs into economic uncertainty.
EU News
Major European indices close with mixed results
- Spain’s Ibex and Italy’s FTSE MIB decline
The major European indices are closing the day with mixed results. While the German DAX, France’s CAC and UK’s FTSE 100 close with gains, the Spain’s Ibex and Italy’s FTSE MIB have closed in the red.
A look at the final numbers shows:
- German DAX, +73.05 points or 0.57%
- France’s CAC, +47.9 points or 0.80%
- UK’s FTSE 100 +13.25 points or 0.18%
- Spain’s Ibex -50.38 points or -0.62%
- Italy’s FTSE MIB -84 points or -0.45%
Other News
ICYMI – World Health Organization (WHO) has identified a new “stealth omicron” strain
An update on this ICYMI. The WHO says the new strain is feared to be more transmissible and evasive than previous variants.
- Officially named BA.2.75
- nicknamed “Centaurus”
- has been found in 10 countries, including Australia, Canada, Japan, New Zealand, Germany, the United States and the United Kingdom
- the WHO has not yet labelled it as a variant of concern
- transmissible, severity, and potential for immune evasion are currently unknown
Cryptocurrency News
Bitcoin falls to a new low…… Follows stocks lower into the NY stock close
- Fears of the US CPI?
As US stocks trade to new lows as the clock ticks to the close for the day, the price of bitcoin is also making a move to the downside.
Looking at the hourly chart of bitcoin, the price has moved below the earlier low for the day at $19520.00 and has now moved back toward the swing low from July 5 at $19363.40. Going back to the end of June and beginning of July the $19281 to $19381 area was home to a number of swing lows ahead of the low extremes at $18595.60 extreme low, and $18763.96 and $18917.86 ahead of that extreme low level.
As mentioned the stocks are lower and the declines correspond with the move back down in the Bitcoin. The US CPI fear seems to be taking some credit for the fear. Tomorrow may be a different story after the fact, but the technical levels are being established in the digital currency in the meantime.