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North American News

Tech stocks rebound and so do banking shares in a broad rally

  • Solid gains for the major indices led by the NASDAQ index

Tech stocks, bank stocks, led the way in a broad market rally today. All three major indices and the small-cap Russell 2000 index all rallied and had solid gains.

The final numbers are showing:

  • Dow industrial average rose 431.15 points or 1.34% at 32654.60
  • S&P index rose 8.82 points or 2.02% at 4088.84
  • NASDAQ index rose 321.74 points or 2.76% at 11984.53
  • Russell 2000 rose 56.87 points or 3.19% at 1840.29

Dow leaders included Boeing, Amex and J.P. Morgan

  • Boeing shares rose 6.4% to $131.99. Boeing shares are the 2nd largest losing stock in the Dow in 2022 with a year to date decline of -35.56% (Salesforce is the biggest loser at -35.56%)
  • JPMorgan and American Express rose by 3.49% and 3.4% respectively. JP Morgan is down -22.78% YTD
  • Another financial gainers today included Citigroup after Berkshire Hathaway (Warren Buffett) disclosed a sizeable new position in the bank. The shares were up 7.73% today. It is now down -15.33% YTD and -33.27 over the last year.

US April advance retail sales +0.9% vs +0.9% expected

  • April 2022 US retail sales data
  • Prior was +0.5% (revised to +1.4%)
  • Ex autos +0.6% vs +0.4% expected
  • Prior ex autos +1.4% (revised to +2.1%)
  • Control group +1.0% vs +0.5% expected
  • Prior control group +0.7% (revised to +1.1%)

US NAHB May housing market index 69 vs 75 expected

  • US home builder sentiment data
  • Prior was +77
  • Current single-family home sales 78 vs 86 prior
  • Sales over the next six months 63 vs 73 prior
  • Index of prospective buyers 52 vs 61 prior

US business inventories for March 2 .0% vs. 1.9% estimate

  • US business inventories for March 2022
  • Prior report 1.5% revised to 1.8%
  • US business inventories for March 2022 2.0% vs 1.9% estimate
  • March inventories t$2324,2 billion vs. $2279.5 billion in February (revised)
  • Business inventories are up 14.7% from March 2021
  • manufacturing inventories were up 1.3%, retail inventories were up 2.3%, and merchant wholesalers were up 2.3%. Him and him
  • Trade sales and shipments were up 1.8% and up 14.1% from March 2021
  • Manufacturer sales were up 2.3% while retail sales were up 1.3% and Merchant wholesalers were up 1.7%
  • inventory to sales ratio 1.27, unchanged from prior month

Looking at some of the component pieces:

  • motor vehicle and parts inventories rose 1.6%. Year on year motor vehicle and part dealers are down -3.1%
  • furniture, home furnishings, electrical and appliance store inventories were up 5.3%. Year on year up 28.1%
  • building materials, garden equipment and supplies up 2.0%. Year on year up 20.1%
  • food and beverage the stores up 2.0%. Year on year up 8.1%
  • clothing stores up 4.1%. Year on year up 19.0%
  • general merchandise stores up 2.4%. Year on year up 25.6%

Commodities

Gold Price Forecast: XAU/USD drops on Fed’s Powell’s hawkish WSJ Q&A

  • Gold goes offered on a hawkish Powell as the US dollar rallies. 
  • The US dollar has popped out of a 15-min wedge formation to the upside. 

The gold price was changing hands between the bulls and the bears during the Federal Reserve’s chairman Jerome Powell’s interview with the Wall Street Journal. At the time of writing, as the event concludes, XAU/USD is trading offered as the US dollar picks up a bid. The yellow metal is down some 0.48% at $1,815.50, falling from a high of $1,836.15 on the day printing a low of $1,813.74. 

The US Dollar Currency Index (DXY), which tracks the greenback against six major currencies, was down 0.82% at 103.33, a touch away from the low of 103.226 ahead of the Powell event.

While well off the two-decade high made last week, which was made on the heels of strong inflation data and supported by a hawkish Federal Reserve, as well as worries over the global economic fallout from the Russia-Ukraine conflict, the bulls are stepping in again. As a consequence, the price of gold is suffering. 

”A failure to confirm the early morning strength would see CTA selling resume course to a large net short position,” analysts at TD Securities argued. 

”With the Fed telegraphing their every move, Fedspeak will be increasingly important this week, particularly as bearish sentiment continues to undermine positioning. In turn, we continue to expect substantial selling flow to weigh on the yellow metal when liquidity is scarce.”

Crude oil closes near low levels. Settles at $112.40

  • Down $1.80 or -1.58%

WTI crude oil futures are closing near low levels on the day. The settle price is at $112.40 which is down -$1.80 or -1.58%. The low for the day reached $112.25. The high reached $115.56.

Powell speaks to slowing demand. If supply is the problem (supply of labor, supply of housing, supply of oil, supply chain in other goods), then attack demand. Higher inflation, higher oil, higher real estate prices slows demand. Higher rates slow demand. The hope is the consumer respond.

The crude oil moved above the topside trend line near $110.00 yesterday and the high from May at $111.37. Those are now support targets on dips. If broken, they tilt the bias more to the downside.

WTI rallies towards late-March highs in $116s on constructive China updates, Russia/OPEC+ output woes

  • WTI has continued to rise on Tuesday, hitting the $115s, up around $17 versus last week’s sub-$100 lows.
  • Easing China lockdown fears combined with ongoing Russia/OPEC+ production woes and risk-on flows is supporting prices on Tuesday.
  • Bulls are eyeing a test of late-March highs in the $116s.

Oil prices have maintained and extended on recent upside momentum on Tuesday, with front-month WTI futures rallying into the $115s per barrel and eyeing a test of late-March highs in the $116s. Constructive updates regarding the Covid-19 situation in China, with Shanghai reporting no Covid-19 infections outside of quarantine for a third day, have boosted hopes for imminent lockdown easing. This, combined with a general more risk-on feel to global macro trade and a weaker US dollar amid hopes the Chinese tech crackdown will also ease, has injected the latest impetus into WTI.

The US benchmark for sweet light crude oil now trades around $17 higher versus last week’s sub-$100 lows. While an easing of China lockdown fears has been the latest bullish catalyst, analysts continue to cite numerous other factors as supportive of prices. Firstly, traders continue to bet that the EU will soon agree on some sort of embargo on Russian oil imports (even though Hungary continues to push back), with some flagging a 30-31 May EU summit as a potential date where agreement could be reached.

An embargo would be a devastating blow to the already shrinking Russian oil output. Since the West imposed harsh sanctions on the nation for its invasion of Ukraine, Russian output has been in decline as exporters struggle to find buyers. OPEC+ output missed the group’s target by 2.6M barrels per day (BPD) in April, a Reuters survey released on Tuesday showed. Half of this miss was due to Russian output falling and things are expected to have gotten worse this month. But the latest report also highlighted the struggles many smaller OPEC+ nations continue to have in lifting output in line with their OPEC+ target, despite sky-high oil prices.

Continued Russia/OPEC+ output woes combined with an easing of China lockdown fears have proven to be a bullish combination for oil markets in recent days. Should risk appetite in broad markets (like in equities) continue to improve, WTI may well be headed back above its late-March highs in the $116s in the near future. This would open the door to a run higher towards annual highs around $130. Should the bulls fatigue, support in the form of earlier monthly highs in the $111s should offer short-term support.


EU News

European equity close: Solid gains in better risk backdrop

  • Closing changes for the main bourses
  • Stoxx 600 +1.2%
  • German DAX +1.6%
  • French CAC +1.2%
  • Spain IBEX +1.5%
  • Italy MIB +0.9%

Other News

US: Continued strength in production is still encouraging – Wells Fargo

Data released on Tuesday showed Industrial Production rose 1.1% in April. Analysts at Wells Fargo point out that US factories, mines and energy producers together called more capacity into service than at any other time since the start of the pandemic. They warn supply chains are not fixed and could worsen in the coming months.

Key Quotes: 

“Supply chain issues, product shortages and difficulty finding labor are still key headwinds, but businesses are plodding ahead. In a rare event, every major category posted an increase in production in April; that was true whether broken out by industry group or market group.”

“Continued strength in production in the face of persistent supply issues is still encouraging and demonstrates increased activity amid an easing of some constraints. Our tracker of progress, the Pressure Gauge, continues to demonstrate a slow easing in constraints.”

“Price pressure remains elevated, but inventories have bottomed, unfilled orders are growing at a slower rate and delivery times, while still long by historic standards, have shortened.”

“Despite growing concern over the slowing of the broader economy amid a tighter policy environment, capital spending remains intact. Demand has not yet showed many signs of slowing as consumers’ demand for goods has held up and businesses still need to replenish depleted inventory levels.”


Cryptocurrency

BOE’s Cunliffe: As tightening and QT starts, we’ll see a move out of risky assets

  • We’ve seen a move out of risky assets already

The comments from BOE MPC member Cunliffe mostly focus on crypto:

  • I don’t think we’re at a place where crypto is a systemic risk
  • There’s no intrinsic value around crypto assets
  • Watching the crypto world carefully
  • You never know for certain what can trigger a loss in confidence

The regulators are coming for stablecoins after what happened to UST.

Nomura will allow institutional investors to trade cryptocurrencies

  • Nomura will create a new digital asset company that will allow institutional investors to trade cryptocurrencies

Headline via Reuters. The news was out overnight though.