North American News
Stocks are rebounding into the close
- NASDAQ now up over 1%
With less than 30 minutes left until the close, the major US stock indices are now trading positive in what has been a volatile up and down trading day. The NASDAQ index is up over 1%. The Dow and S&P which were the laggards today also higher.
A snapshot of the market currently shows:
- Dow industrial average up 82 points or 0.25% 33059.72
- S&P up 17.1 points or 0.41% at 4149.02
- NASDAQ up 155 points or 1.26% at 12489.71
- Russell 2000 up 10.95 points or 0.59% 1875.05
The major indices are well off session lows:
- Dow industrial average was down -527.34 points or -1.6%
- S&P index was down -69.84 points or -1.69%
- NASDAQ index was down -132.23 points or -1.07%
In the US debt market, yields remain higher with the 10 year reaching the 3% level for the first time in this cycle to the upside:
- 2 year 2.727%. Up 0.6 basis points
- 5 year 3.008%, +4.8 basis points
- 10 year 2.990%, +5.1 basis points
- 30 year 3.058%, +5 point basis points
US 10-year yield hits 3% for the first time since 2018
- Three per cent rates return
It’s a rollercoaster in stocks today but there’s been consistent selling bonds.
Dating back to 1970, this is the first year where stocks and bonds have both fallen 10% to start the year. That’s a clear sign of deleveraging, which I believe is what’s driving everything right now.
The first thing to watch will be for a close above 3%, or even a weekly close. The next will be watching the 2018 cycle high, which was 3.26%.
Of course, Wednesday’s FOMC decision and communication afterwards will be a big part in what comes next.
Atlanta Fed GDPNow estimate for 2Q growth falls to 1.6% from 1.9%
- It’s in the early days of the second quarter model estimates
The Atlanta Fed GDPNow estimate for 2Q growth to 1.6%. from 1.9% from April 29 after the construction spending data today.
In their own words
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is 1.6 percent on May 2, down from 1.9 percent on April 29. After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcasts for second-quarter real personal consumption expenditures and second-quarter real gross private domestic investment growth declined from 3.8 percent and -1.3 percent, respectively, to 3.6 percent and -2.1 percent, respectively.”
S&P Global final US April manufacturing PMI 59.2 vs 59.7 prelim
- Manufacturing survey from S&P Global (formerly Markit)
- Flash was 59.7
- Prior was 58.8
Commodities
Gold Price Forecast: XAU/USD bears break below the 100-DMA and eye $1834 ahead of the FOMC
- The yellow-metal remains pressured ahead of the Federal Reserve May meeting.
- A downbeat market mood, courtesy of China’s Covid-19 struggling and weak PMIs reported, threatens to derail the world’s second-largest economy.
- Gold Price Forecast (XAU/USD): Neutral biased, though a daily close below the 100-DMA might put the 200-DMA in play.
Gold spot (XAU/USD) remains under pressure for the second consecutive trading day, and for the first time in May, as market participants prepare for the Fed’s May meeting, where investors expect a 50 bps increase to the Federal Funds Rates (FFR) as well as the begin of the QT. At the time of writing, XAU/USD is trading at $1865.91 a troy ounce.
Risk-aversion ahead of the Fed meeting boosts the greenback
The market sentiment remains dampened as the US central bank takes center stage in a busy week in the US economic docket. Alongside the Fed’s May meeting, the US ISM Manufacturing PMI for April was released earlier as Wall Street opened, with the reading showing that manufacturing slowed to its lowest level in 21 months. The reading came at 55.4, missing expectations and lower than March’s 57.1.
Regarding the report, the ISM Manufacturing Business Survey Committee chair Timothy Fiore said new coronavirus outbreaks overseas were “creating a near-term headwind for the US manufacturing community,” noting that some manufacturers worried “about their Asian partners’ ability to deliver reliably in the summer months.”
In the meantime, US Treasury yields are skyrocketing during the day. The US 30-year broke the 3% threshold, while the barometer for US Treasury yields, the 10-year benchmark note, surges five and a half basis points, sitting at 2.998%. That, alongside overall greenback strength, as shown by the US Dollar Index up 0.42%, at 103.649, weighed on the non-yielding metal.
Factors alongside the busy US economic docket featuring ADP and US Nonfarm Payrolls employment reports remain in the backdrop. China keeps struggling to tackle the recent coronavirus flare-up that struck Shanghai and has already spread to Beijing. Restrictions could be re-established in Shanghai, while Beijing tested millions of people on a May Day holiday, as reported by Reuters. It’s worth noting that Caixin Manufacturing and Services PMIs, plunged below expectations.
Gold Price Forecast (XAU/USD): Technical outlook
The XAU/USD’s daily chart depicts the yellow metal as neutral biased. At the time of writing, gold is trading below the 100-day moving average (DMA) at $1879.51, a level that, if it gives way to XAU/USD bears to record a daily close below it, could open the door for a drop towards the 200-DMA around $1834.45.
On the downside, gold’s first support would be the 200-DMA at $1834.45. Break below would expose an upslope trendline around $1810-15, followed by a renewed test of $1800.
Upwards, XAU/USD’s first resistance would be the 100-DMA at $1879.51. A breach of the latter would expose $1890, followed by $1900, and then April’s 29 daily high at $1919.77.
Silver Price Analysis: XAG/USD plunges to multi-month low, fast approaching $22.00 mark
- Silver witnessed heavy follow-through selling on Monday and dived to a near three-month low.
- Last week’s break below the 200-DMA and ascending trend-line was seen as a key trigger for bears.
- Extremely oversold RSI makes it prudent to wait for some consolidation before the next leg down.
Silver extended a three-week-old bearish trend and witnessed some follow-through selling for the eighth successive day on Monday. This also marked the ninth day of a negative move in the previous ten and dragged spot prices to the $22.00 neighbourhood, or a near three-month low during the early North American session.
Looking at the broader picture, last week’s sustained breakthrough the very important 200-day SMA and an ascending trend-line extending from December 2021 was seen as a fresh trigger for bearish traders. A subsequent slide below the $22.65 static support aggravated the bearish pressure and contributed to the downfall.
That said, RSI (14) on the daily chart is already flashing extremely oversold conditions and warrants caution for aggressive traders. This makes it prudent to wait for some near-term consolidation or modest bounce back towards the $22.65 area before positioning for an extension of the ongoing downward trajectory.
Hence, any further decline is more likely to pause near the $22.00 round-figure mark. That said, a convincing break below should pave the way for additional losses and expose the next relevant support near the $21.45-$21.40 region, or the December 2021 swing low.
On the flip side, attempted recovery back above the $22.65 region could be seen as a fresh selling opportunity near the $23.00 round figure. This, in turn, should cap the upside for the XAG/USD near the aforementioned ascending trend-line support breakpoint, now turned resistance near the $23.20 area.
WTI crude oil futures settle at $105.17
- Up $0.48 or 0.46%
The price of WTI crude oil futures retraced the earlier losses and is settling at $105.17. That’s up $0.48 or 0.46%.
The low price was down at $100.28. While the high price extended to $105.71.
In the Asian/European session, the price moved sharply lower, falling below its 100 and 200 hour moving averages in the process. The low price approached swing lows from Thursday’s trade, and a swing area between $99.88 and $100.16. Buyers leaned against the swing area and pushed price back to the upside.
After breaking back above the 200 and 100 hour moving averages, increased buying momentum has push the price up to a another swing area between $105.23 or $105.68. Sellers are trying to hold the price against that area.
EU News
European equity close: Early flash crash recovers but the losses mount
- Closing changes for the main European bourses
- German DAX -1.3%
- UK FTSE 100 +0.5%
- French CAC -1.8%
- Italy MIB-1.7%
- Spain IBEX-1.7%
- Stoxx 600 -1.5%
There was an early flash crash in all major European markets. Regulators looked at the trade but didn’t cancel any trades, saying it was a market participant unloading shares.
Other News
China continues to struggle with covid cases
- 58 cases reported in ‘low risk’ zones in Shanghai
Earlier today, China reported 7333 new covid cases, falling by 6.8% in the past 24 hours.
That’s a good sign but there was also a big setback in Shanghai. The city reported zero cases outside of quarantine facilities in the previous two days, inspiring some hope of sustainably eased lockdowns. But today it reported 58 cases in areas called “precautionary zones” where there hadn’t been cases in 14 days. That led to new restrictions in those areas.
In Beijing, 36 new cases were detected, bringin the number to 400 in the latest wave.
Aside from Chinese domestic demand, the market is concerned about fresh supply bottlenecks out of China. Two comments in today’s ISM manufacturing report highlighted longer lead times at US factories directly due to Shanghai shutdowns.
Cryptocurrency
Bitcoin undecided on a scenario for May
- In terms of seasonality, May is considered a relative success for BTC.
Bitcoin is down 3% over the past week, ending it at around $38.K. Ethereum lost 4.4%, while other leading altcoins in the top 10 fell from 4% (Binance Coin) to 14.7% (XRP). The total capitalisation of the crypto market, according to CoinGecko, fell 4.6% over the week to $1.75 trillion.
The Bitcoin Dominance Index rose by one percentage point to 42.2% over the same period due to weakness in altcoins. For the week, the cryptocurrency fear and greed index fell by 2 points to 22 (“extreme fear”). The index rose to 28 points on Monday and moved into “fear” status. Bitcoin has declined over the past four weeks amid weakening US stock indices. On Friday, Amazon and Google shares suffered their most significant falls since 2008, dragging down the tech-rich Nasdaq Index. It lost 12.7% in April, its most considerable dip since 2008.
Bitcoin fell 16.2% over April, offsetting the previous two-month rise and falling short of seasonal trends. This is the worst performance in a given month of the year in trading history since 2011. In terms of seasonality, May is considered a relative success for BTC.
Over the past 11 years, bitcoin has ended the month up seven times and down four times. The average rise was 27%, and the average decline was 16%. Under these scenarios, the estimated average range for BTC at the end of May is between $32K and $48K.
A more local view of the dynamics of the first cryptocurrency indicates an ongoing struggle around the $38K mark. This struggle will decide which of the above levels the price will be closer to at the end of the month. The Swiss National Bank’s (SNB) management believes it is inadvisable to invest in bitcoin and hold it as reserves for the regulator. The US Department of Labor has raised concerns about an initiative by US investment firm Fidelity to allow its customers to put a portion of retirement accounts in bitcoin.