North American News
US equities puke up early gains in a swan dive
- Closing changes for the main US markets
- S&P 500 -1.5%
- Nasdaq -2.0%
- DJIA -1.0%
- Russell 2000 -2.3%
- Toronto TSX -1.6%
The Nasdaq traded 1% higher shortly after the open but when bonds cracked, the market fell apart. New cycle highs in yield in the front end spooked the market. Daly was talking about ‘a couple’ of 50 bps hikes and that hit a market that’s downright frightful about Q1 earnings reports.
Ugly price action extends as Nasdaq falls 2% to the lowest since March 16
- No let up in the selling
Bond yields started this rout but even with Treasuries reversing somewhat, the pain continues. US 30-years are back to 2.93% from a high of 2.99% and US 2-years are down to 2.67% from 2.73% but it hasn’t mattered to stocks.
Earnings are clearly a concern here as no one wants to be holding the next NFLX. Yesterday afternoon, TSLA reported a big beat and is still only up 2.7% and trading below where it was at the start of the week.
S&P 500 drops back to 4,400 as markets digest hawkish Fed commentary
- Major US equity indices reversed early gains on Thursday amid hawkish comments from Fed Chair Powell.
- The S&P 500 dipped back to 4,400, having earlier rallied above 4,500 on initial strength related to strong Tesla earnings.
Major US equity indices reversed early gains on Thursday as US yields rallied following hawkish comments from Fed Chair Jerome Powell, who endorsed the possibility multiple 50 bps rate hikes at upcoming Fed meetings. Strong earnings from Tesla (+2.8%) following Wednesday’s close helped the S&P 500 open Thursday trade roughly 0.75% higher and at one point surpass the 4,500 mark, but Powell’s comments that 50 bps rate hikes were “on the table” at upcoming meetings, which compounded an earlier hint from Fed’s Mary Daly that the Fed would even consider a 75 bps move, saw the index drop under 4,400.
At current levels in the 4,390s, the S&P 500 is trading with on the day losses of nearly 1.5%, with the bears eyeing a test of monthly lows near 4,370. The Nasdaq 100, unsurprisingly, was the underperformer of the major US indices, dropping closer to 2.0% and under 13,750 for the first time this month. The Nasdaq 100 is more heavily weighted to high price-to-earnings ratio tech and so-called growth stocks, which tend to suffer in an environment of rising interest rates.
The Dow, which is weighted a little more towards value/cyclical stocks which tend to hold up better when interest rates rise, dropped a little less than 1.0% to give up 35,000 status. A weaker than expected US Philadelphia Fed Manufacturing survey for April and robust weekly jobless claims numbers didn’t have an impact on market sentiment, with central bank speak taking the limelight.
Looking ahead, earnings remain in focus and could potentially offer the market a bit of a lift. For the most part, it’s been a decent earnings season thus far, with the notable exception of the Netflix debacle earlier in the week. Most recently, United Airlines Holdings and American Airlines Group posted strong results and saw strong gains on Thursday after predicting a return to profit this quarter amid a rapid recovery in travel demand.
Dollar rallies as Treasury yields climb higher
- Here we go
Yields are on the march once again.
US 2-year yields are up 8.4 bps to 2.66%, which is a new cycle high.
Fed’s Powell: It is appropriate to be moving more quickly and front-end loading
- Comments from Powell on a panel with Lagarde
- 50 bps will be on the Powell for the May meeting
- I don’t want to bless any market pricing but they are acting appropriately to our communications
- At the recent meeting, many on the committee thought one or more 50 bps hikes appropriate
- We need price stability to have a strong labor market
- It is essential to restore price stability
- In the US we have very strong growth and high inflation elsewhere has different levels of growth and a lower starting point
- We have had an expectation that inflation would peak around this time but these expectations have disappointed in the past
- Are we going back to the old economy? Probably not. What does the new one look like?
- There is a lot to like about the US labor market but it’s not sustainably hot
Feds Bullard: The Fed is behind the curve
- St. Louis Fed president Bullard speaking
St. Louis Fed president Richard Bullard is speaking. Bullard is the most hawkish of the Fed members. He is semi-advocating for at least a look at raising rates by 75 basis points. Admittedly, his hawkish this has been a leading voice amongst Fed members:
Bullard says:
- The Fed is behind the curve and will not have a hard landing
Commodities
Gold Price Forecast: XAUUSD flows to subside as the fear trade dissipates – TDS
How sustainable is the flood of capital finding its way into gold? In the opinion of strategists at TD Securities, the yellow metal is set to see fewer investors willing to buy the safe-haven asset.
The right tail is narrow in gold
“Thus far, the gold’s prices have remained extremely resilient against an aggressively hawkish Fed, as a protracted war in Ukraine simultaneously raised both geopolitical uncertainty and inflation risks, thereby fueling demand for the yellow metal as a safe haven. This trend has also likely been exacerbated by the concurrent decline in global equity and bond prices, which is consistent with fears that Treasuries may be less potent havens in a higher-inflation regime.”
“While the Fed is signaling its intent to combat inflation by reaching policy neutrality by year-end, and to start an aggressive QT regime, outflows from gold markets have been scarce as participants are happy to retain some optionality against the Fed’s stated plan amid growth concerns.”
“Safe-haven flows are likely to subside as the fear trade dissipates, leaving fewer participants left to buy gold. Comex shorts have also largely been wiped out, further removing some fuel for price strength. In this context, the right tail is narrow in gold.”
Gold Price Forecast: XAUUSD to see a fresh bull trend only above the $2,070/75 highs – Credit Suisse
Gold maintains a slight upward bias in its broader sideways range. A break past the $2,070/75 highs would resolve the range higher for a fresh bull trend, strategists at Credit Suisse report.
Break below $1,877 to reassert the broad sideways range
“Gold above $1,877 can maintain an immediate upward bias in the broader sideways range.”
“Only above the $2,070/75 highs though would be seen to resolve the range higher for a fresh bull trend, with resistance then seen at $2,280/2,300.”
“A break below $1,877 can further reassert the broad sideways range with support then seen next at $1,845/31.”
Silver Price Analysis: XAG/USD dumps over 2.5% to near $24.50, eyes test of $24.00 support as yields surge
- Rising global yields as a result of hawkish ECB and Fed speak is weighing heavily on silver.
- XAG/USD has dumped over 2.5% on the day back to near $24.50.
- Bears are eyeing a test of recent lows in the $24.00 area, where the 200DMA also resides.
Chatter from ECB Vice President Luis de Guindos regarding a possible ECB rate hike as soon as July earlier in the morning meant that global yields were already on the front foot heading into the US trading session and the latest remarks from Fed’s Mary Daly about how the Fed will likely be raising interest rates by 50 bps at the next “couple” of Fed meetings has ignited further upside. At the time of writing, US 2-year yields were up 12 bps to trade back above 2.7% and 10-year yields were up 10 bps to trade in the mid-2.90s%.
The rise in US (and global) yields as bond market participants up their bets on central bank tightening in wake of the latest round of rhetoric from ECB and Fed policymakers has seen spot silver (XAG/USD) prices incur sharp losses. XAG/USD was last trading down by more than 2.5% on the day near the $24.50 per troy ounce mark, having dumped below its 21 and 50-Day Moving Averages earlier in the day, both of which reside closer to the $25.00 level.
Markets are braced for further central bank rhetoric in the coming hours, with both Fed Chair Jerome Powell and ECB President Christine Lagarde slated to speak from 1800BST. Should their comments add further fuel to the global yield rally, XAG/USD bears will be eyeing further downside and may target support in the $24.00 area in the form of earlier monthly lows and the 200DMA.
EU News
European major indices close the session with mixed results
- Major indices give up some of their gains into the close
At the start of the US session, the major European indices showed gains across the board:
- German DAX, +1.5%
- France’s CAC, +1.86%
- UK’s FTSE 100 +0.3%
- Spain’s Ibex, +1.0 present
- Italy’s FTSE MIB +0.25%
Eurozone April flash consumer confidence -16.9 vs -20.0 expected
- Eurozone consumer confidence data
- Prior was -18.7
ECB’s Lagarde: Risks to growth are skewed to the downside
- Lagarde speaking with Powell on a panel
- I wouldn’t rule out that Russian oil and gas is sanctioned
- We cannot operate at the same pace and sequence as the Fed
- Inflation is supply driven; half of it is energy
- Core inflation is just 2.9% and ‘manageable’
Other News
US President Biden: US sending weapons “directly to the front lines of freedom” in Ukraine
US President Joe Biden, in a speech about the latest US military aid package for Ukraine, said that the US is sending weapons “directly to the front lines of freedom”, reported Reuters on Thursday.
Cryptocurrency
Bitcoin can’t keep upside momentum going
Australia prudential regulator outlines policy roadmap for crypto assets
- The Australian Prudential Regulation Authority (APRA)
Headlines via Reuters.
- sets out initial risk management expectations and policy roadmap for crypto-assets
- regulated entities should engage with responsible supervisor if they are undertaking activities associated with crypto-assets
- expects all regulated entities will adopt prudent approach if they are undertaking activities associated with crypto-assets
- expects all regulated entities to conduct due diligence, comprehensive risk assessment before engaging in crypto-assets related activities
- developing longer-term prudential framework for crypto-assets in consultation with other regulators internationally
- in period ahead, plan to consult on requirements for prudential treatment of crypto-asset exposures in Australia for ADIs
- in period ahead, plan to consider possible approaches to the prudential regulation of payment stablecoins, among others