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North American News

Nasdaq erases declines. Closes marginally higher. Dow and S&P close lower

  • Nasdaq erases a decline of -2.25%. The Dow was down as much at 605 points at the session lows

Well.. the Nasdaq closed higher.

After trading down as much at -255.47 points or -2.25% at session lows, the Nasdaq rallied into the close and eked out a gain of 6.72 points or 0.06%.

The Dow and S&P could not make it back into positive territory but erased large declines.

  • The Dow industrial average was down -605.89 points or -1.9% at its session lows
  • S&P was down -76.38 points or -1.94% at its lows

The final numbers are showing:

  • Dow industrial average -103.83 points or -0.33% at 31730.29
  • S&P index -5.10 points or -0.13% at 3930.09
  • NASDAQ index up 6.72 points or 0.06% at 11370.95
  • Russell 2000+21.23 points or 1.24% at 1739.38

The major indices are still lower for the week and working on their 6 consecutive weekly decline for the S&P and NASDAQ (with one more day of trading). The Dow is on pace for its 7th consecutive week decline.

From the all-time highs:

  • Dow closed down -14.13% after trading as low as -15.49%
  • S&P index closed down 18.44% after trading as low as -19.92%
  • NASDAQ index closed down -29.86% after trading as low as -31.48%

US treasury auctions off $22 billion of 30 year bonds at high yield of 2.997%

  • WI level at the time of auction was at 3.006%
  • High yield  2.997%
  • WI level at the time of the auction 3.006%
  • Tail -0.9 basis points vs. six-month average of 1.4 basis points
  • Bid to cover 2.38X vs. six-month average of 2.31X
  • Directs (a measure of domestic demand) 16.6% vs six-month average of 17.4%
  • Indirects (the measure of international demand) 69.66% vs six-month average of 64.9%
  • Dealers 13.7% vs six-month average of 17.7%

Commodities

Gold Price Forecast: XAU/USD bears knocking on the door of critical daily support

  • Gold drops into a fresh critical daily support structure. 
  • The US dollar is bid and making fresh 20-year highs.
  • Price pressures are entrenched and investors are seeking out the safe havens.

The price of gold is losing some 1.60% at the time of writing, falling from a high of $1,858.87 to a fresh cycle low of $1,822.27. The US dollar is bid and climbed to fresh two-decade highs on Thursday as investors flock to the safe-haven currency in the face of surging inflation.

Data on Wednesday confirmed expectations for further aggressive hikes in interest rates by the Federal Reserve. The Consumer Price Index climbed 8.3%, higher than the 8.1% estimate but below the 8.5% in the prior month. The index rose just 0.3% last month, the smallest gain since last August, the Labor Department said on Wednesday, versus the 1.2% MoM surge in the CPI in March, the most significant advance since September 2005. However, ”the fact that the CPI is driven by rents and services implies that price pressures are entrenched and may manifest in upward pressure on wages too,” analysts at TD Securities argued. 

As a consequence, the dollar index (DXY), which measures the greenback’s strength against a basket of six currencies, rose 0.4% to 104.92 on Thursday following a jittery day on Wednesday. 

“Dollar is rallying as things potentially look negative in the US, which is hurting gold. Also, the market is realising the likelihood of seeing pretty aggressive interest rate increases,” analysts at TD Securities said. 

However, precious metals are holding up relatively as a drop in the benchmark 10-year Treasury yields, which hit the lowest level in two weeks, has capped some of the bear’s progress. The ten-years are down over 3% while the more Fed tentative 2-years are losing 3.7%, weighed by Producer Prices that fell short of expectations. 

The US Producer Price Index increased by 0.5% in April compared with a 1.6% jump in March. Excluding food and energy, the core PPI climbed by 0.4%, lagging the 0.7% gain expected. Core PPI grew by 1.2% in March. On a year-over-year basis, producer price inflation surged 11% in April, and core PPI jumped 8.8%, the Bureau of Labor Statistics said Thursday.

Silver Price Analysis: XAG/USD consolidates above $21.00 after hitting lowest since July 2020

  • Silver is consolidating above $21.00 after hitting its lowest level since July 2020 in the $20.75 region.
  • Risk-off flows and lower yields aren’t doing much to help XAG/USD, which is about 2.0% lower on the day.
  • Technicians are eyeing more downside to sub-$20.00 levels.

After briefly hitting its lowest level since July 2020 in the $20.75 area per troy ounce, the price of spot silver (XAG/USD) has stabilised just above the $21.00 level. That leaves the metal trading lower by about 2.0% on the session, as the precious metal complex reels against the backdrop of a strong US dollar. With no notable support, all before the 2019 highs in the $19.60s, many technicians think that further XAG/USD downside is likely.

Lower yields across developed markets as a result of a strong safe-haven bid as global equities and other risk assets continue their recent slide has not come to the aid of silver, which is traditionally seen as a safe-haven asset. Meanwhile, further evidence that US inflation isn’t easing as quickly as hoped in the form of the latest US Producer Price Inflation data released earlier on Thursday, which comes on the back of Wednesday’s also hotter than forecast Consumer Price Inflation numbers, has also not sparked any fresh demand for inflation protection that might normally benefit the precious metal

Markets remain very much focused on central bank tightening, with the rhetoric from Fed members this week very much in fitting with Fed Chair Jerome Powell’s message in the post-FOMC meeting press conference last week that substantial further tightening should be expected. Higher interest rates not only by themselves dissuade investors from allocating capital towards silver and gold (given the higher opportunity cost of holding non-yielding assets), but are also likely to result in lower inflation in the long run (as a direct result of demand easing due to tighter financial conditions), lessening the demand for inflation protection.

Reduced demand for inflation protection as a result of the Fed’s hawkish shift in recent weeks can be seen in the recent pullback to multi-month lows in US inflation expectations. 10-year break-evens went as high as 3.1% in mid-April but are now back to the 2.75% area, with this pullback coinciding with the recent drop in XAG/USD.

Crude oil futures settle at $106.13

  • Up $0.42 or 0.40%

 Crude oil  futures are settled the day at $106.13. That is up $0.42 or 0.4%.

The high price reached $107.37. The low price was at $102.66.

Looking at the daily chart, there has been a lot of up and down price action of the last few months. The high price on March 24 reached $116.64. The low price from April 11 moved to $92.93. In May, the range is more narrow with the high at $111.37 and the low at $98.20.

The low price reached yesterday stalled right near a upward sloping trendline connecting swing lows from April. Holding support gave the buyers a reason to push the price higher from a technical perspective.

The higher downward sloping trendline cuts across at $110.37 currently.


EU News

European major indices close lower but off there lowest levels

  • Markets rebound from lowest levels

The major European indices are ending the day with declines but well off there lows. The UK FTSE 100 is an exception (closing more toward the lows of the day).

  • German DAX, -0.64%
  • France’s CAC -1.0%
  • UK’s FTSE 100 -1.56%
  • Spain’s Ibex -1.35%
  • Italy’s FTSE MIB -0.67%

Other News

So much hinges on the assumption that central bankers won’t hike into a recession

  • The ECB will hike. Fed put may be dead

Lagarde and Schnable came out this week with a call to arms for tighter policy but the market isn’t buying it. Money markets are now pricing in 80 bps of hikes from the ECB this year versus 95 bps at the start of the week.

In the US, yields are also coming down as growth fears mount. That’s a reflection of the market pricing in a less hawkish path. Given what Lagarde said and given that several FOMC members this week said that jobs may need to be shed in order to get inflation under control, I think this is a mistaken assumption.


Cryptocurrency

Crypto Apocalypse?

Ethereum has an annihilation pattern and I would like to share it with you as the price of the second largest crypto is approaching the trigger point.

You know this famous pattern very well as this model frequently appears in different instruments. I know it looks a little bit weird as the shoulders are not symmetric. However, all parts are in place, and the Head is the highest peak.

The failure to proceed to the upside after breakout beyond this February’s peak of $3,280 dried the demand for the second largest cryptocurrency; it has been building the small Right Shoulder of the pattern. The Neckline has been drawn through the valleys of the Head.

The price is approaching the Neckline at a dangerously fast pace. The breakdown of that trigger below $2,350 would open the way to the downside. The Head is so tall above the Neckline that the target calculation is confusing. When the height of the Head is subtracted from the Neckline break point, it gives the negative aim number of around minus $600. Once, I already doubted such an outcome for the Crude Oil futures, and it dropped to negative numbers. However, this is not a futures market, and it is highly unlikely to see something below zero, which means total annihilation of the Ethereum price.