North American News
Reality Check On Recession.Wall Street Plunges
- Dow down 1000 points. Nasdaq down -5%
Twenty-four hours ago, the markets were looking forward to a corrective move higher after the FOMC put 75 basis points off the table going forward. However, the broader Nasdaq and S&P were closing right around the 100 hour MA. The technicals were not in “clear sailing” seas.
Today, the indices opened lower and some pretty poor productivity data (worst since 1947) turned the buyers into sellers and that selling did not abate for most of the day.
The Nasdaq traded to a new 2022 low. The S&P remains above its lowest low for the year but was down over -3.5%. The Dow lost 1000 points.
The final numbers are showing:
- Dow fell -1063.11 points or -3.12% at 32997.96
- S&P fell -153.30 points or -3.56% at 4146.86
- Nasdaq fell -647.15 points or -4.99% at 12317.70
- Russell 200 fell -78.77 points or -4.04% at 1871.14.
Tomorrow is another day, but today the market was sick. How we feel tomorrow?
Nasdaq decline extends to 6%
- Well this isn’t good
This is not a pretty picture in any sense.
Now you can argue that if you ignore yesterday’s gain, this isn’t that bad. But I won’t make this argument because a 6% loss is a 6% loss and it’s one of the worst days ever for stocks.
Don’t ignore the puke in bonds as well
- No one buying anything
Equities are having a rough day and that would normally lead to some buying in bonds. Instead, we’re seeing a rout.
US 10-year yields are up 17 basis points, completely wiping out yesterdays drop and much more. This will be the first close above 3%, in all likelihood.
Moreover, 2-year yields are up 11 bps to 2.72%. That’s still 10 bps from yesterday’s high but worth watching closely whenever the puke in stock markets stops. On that front, the Nasdaq continues to hit new lows, down 4.8% in the worst day since Jan 24 and bordering on the worst day since Sept 2020.
If the Fed loses control of this market and its credibility in fighting inflation then we’re in for some bad times.
Tomorrow is non-farm payrolls Friday and if we see something like strong jobs grains and high wages then the FOMC is in real tough spot. Their hope has to be that both are on the softer side of expectations. The problem is, that could stoke growth slowdown talk and that will heighten the focus on the difficulty in achieving a soft landing.
Given all that, you can see why there’s a move to deleverage.
Commodities
Gold Price Forecast: XAU/USD’s fate is in the hands of the US dollar bulls and NFP
- Gold prices are back in the hands of the US dollar ahead of NFP.
- A break of daily support at $1,850 opens the door to a test of $1,800 should US dollar strength prevail.
At $1,875, the gold price has been pressured and is trading not far from the lows of the day down at $1,872.54, losing some 0.34% at the time of writing. Gold fell from a high of $1,909.82 as the US dollar rebounded on Thursday, moving in on the 20-year highs reached last week, as per the DXY index.
DXY, an index that measures the greenback vs. six rivals, is currently trading at 103.84 and is 1.3% higher on the day after rallying from a low of 102.352 to a new cycle high of 103.942. The move comes following the Federal Reserve the prior day affirming that it would take aggressive steps to combat soaring inflation. Markets initially sold the fact yesterday but the dollar dropped sharply when the Fed chairman, Jerome Powell, dialled back on prospects of 75bps hikes.
However, the traders have now sold the euro which has propelled the greenback higher again. Weak German data showing that industrial orders in March suffered their biggest monthly drop since last October and the Ukraine crisis tensions are weighing on risk sentiment in the eurozone. The greenback was subsequently boosted by safe-haven buying as global equities come back under pressure.
All eyes on NFP
The moves in the markets come ahead of Friday’s showdown event in the US jobs market. The Nonfarm Payrolls (NFP) is a major risk and could well set the tone for the following weeks ahead of the next Fed rate decision.
”A strong payrolls report could perversely push the market to price in more tightening as the Fed reduced its optionality at its most recent meeting,” analysts at TD Securities said.
”That leaves a resilient USD vs EUR and yen very much the path of least resistance. A softer wages print should help to temporarily take the edge off but this will be short-lived until evidence of a peak/moderation in CPI emerges.”
Should the jobs data come in strong, it could exacerbate the fall in gold prices, especially considering that the breadth of traders’ short positions remains near their lowest levels on record. Shorts that have been squeezed between $1,890 and $1,910 in this week’s rally in the gold price will likely be looking to reinvest any dry powder on further signs that the US dollar bulls are moving in again.
Gold technical analysis
The price is carving out a case for a significant downside continuation with the resistance near $1,890 holding up for the most part bar a clearing in the short-lived spike to $1,910. A break of daily support at $1,850 opens the door to a test of $1,800 should US dollar strength prevail.
Silver Price Analysis: XAG/USD holds above $23.00 as BoE adds to supportive “dovish” central bank vibes
- Silver is currently holding above $23.00 and on course for a second day of gains amid dovish central bank vibes.
- The Fed ruled out 75bps rate hikes on Wednesday and the BoE sounded the alarm about a possible UK recession.
- Focus now shifts to Friday’s official US labour market report.
Spot silver (XAG/USD) prices held above the $23.00 per troy ounce level on Thursday after markets interpreted the latest BoE policy announcement as dovish, one day after a less hawkish than feared policy announcement from the Fed. At current levels in the $23.10s, XAG/USD trades with on-the-day gains of more than 0.5%, taking its two-day rally to over 2.0% and recovery since earlier weekly lows at $22.12 to more than 4.5%.
After the Fed lifted interest rates by 50 bps as expected on Wednesday and ruled out hiking interest rates in more aggressive 75 bps intervals at upcoming meetings, a move which analysts said removed some downside risk to precious metals, the BoE warned of a recession in the UK economy in 2023, though still raised interest rates by 25 bps on Thursday. Ahead of the release of the April US labour market report on Friday, dovish central bank vibes will likely keep XAG/USD supported above $23.00.
The precious metal might even be able to rally back to test its 200-Day Moving Average in the $23.75 area. But it remains premature to bet on a more substantial rebound back to, say, April’s highs in the $26.00s. While the BoE doesn’t seem likely to tighten monetary policy settings much more amid growing concerns about UK economic growth later in the year, as well as worries about the bank’s ability to meet its long-term inflation objectives, Fed policy risks remain tilted in favour of a further hawkish shift.
Despite ruling out 75 bps rate hikes on Wednesday, Fed Chair Jerome Powell was keen to reiterate that the Fed is prioritising bringing inflation down above all else. If inflation fails to moderate as much as expected (or hoped for) by the Fed in the second half of this year, then risks are tilted towards the Fed signaling interest rates rising significantly above the so-called “neutral” rate.
That could ignite further long-term upside in USD and US yields, which could weigh heavily on silver. Rallies, thus, remain subject to being sold and many XAG/USD bears will continue to target a test of 2022 lows around the $22.00 mark.
Crude oil settles at $108.26
- Up $0.45 or 0.42%
The price of WTI crude oil futures are settling at $108.26. That’s up $0.45 or 0.42%. The high price reached $111.37 before backing off into the close. The low was at $106.45.
Today OPEC met and decided to increase production by 432,000 barrels as expected. The problem is the members have had trouble reaching that monthly production increase quota. In addition potential oil sanctions against Russia is it could continue to disrupt the supply-side of the equation. Working in favor of the demand-side would be a slower economy as a result of higher rates and disruptive markets.
The price action on the hourly chart has been choppy up and down of late. Since April 28, the price high had been at $109.20. With the low near
EU News
European equity close: Early optimism ends in shambles in a finish at the lows
- Closing changes for the main European bourses
- Stoxx 600 -0.7%
- German DAX -0.6%
- UK FTSE 100 +0.2%
- Italy MIB -0.6%
- Spain IBEX -0.4%
- French CAC -0.5%
Other News
Euro Risks Falling Below Parity On Energy Supply Worries – MUFG
- Euro strategy
MUFG Research discusses the EUR outlook and maintains a bearish bias over the coming months.
“At the start of this month market participants have become even more fearful over downside risks to growth for European economies posed by energy supply restrictions. It follows the decision by Russia to turn off gas supplies to Bulgaria and Poland. While we do not expect Russia to turn off gas supplies to other major euro-zone economies such as Germany and Italy, the uncertainty will linger in the near-term until there is more clarity over how the stand-off over Russia’s demand to be paid in roubles is likely to be resolved,” MUFG notes.
“A more disruptive than expected outcome for European gas supplies would increase the likelihood of EUR/USD falling closer to and below parity in the coming months,” MUFG adds.
Hungary’s Orban confirms that he doesn’t support EU ban on Russian oil
- Orban is the one to watch
Hungary’s Prime Minister Victor Orban has become Russia’s chief supporter in the EU and that support is threatening a break in EU unity.
Orban sent a letter to European Commission president Ursula von der Leyen this week saying his country couldn’t support the latest sanctions plan “in its current form.”
Orban said the current timeline would require upgrades to supply infrastructure and refineries that would be tough to finance. He argued for waiting until all member states meet those preconditions.
Every EU member has a veto on sanctions.
The latest report said that EU diplomats remain hopeful of a deal, in part because the EU has access to collective funds that Hungary is eager to access.
In April, Orban won a resounding victory in parliamentary elections with a strong majority in the national assembly.
Oil market participants should be watching this very closely. Despite all the diplomats saying this deal is close-to-done, it could fall apart and that would represent a signficant downside for oil at a time when global growth sentiment is already weak.
Cryptocurrency
The bottom falls out of bitcoin as it extends decline to 9%
- Bitcoin hits stops
US stocks are still holding (barely) their lows but bitcoin has been a bit of a leading indicator lately. If that’s the case then look out because bitcoin just dropped $800 in short order to hit a session low of $36,038. As I write it’s bounced modestly from the figure.
In the bigger picture, today’s candle is an ugly one.
