North American News
US stocks post a strong turnaround after a poor start
- S&P 500 up nearly 1%
The bulls scored a nice victory today but it took a reversal in yesterday’s bond market action to make it happen. US 10-year yields fell 5 bps and that was the catalyst and the spot to watch tomorrow.
Closing changes:
- S&P 500 +0.95%
- Nasdaq +0.94%
- Russell 2000 +1.6%
- Dow +0.8%
US treasury auctions off $44 billion of 3 year notes at a high yield of 2.927%
- WI level at the time will auction was 2.917%
- High yield 2.927%
- WI level at the time of auction 2.917%
- Tail 1.0 basis points vs. a six-month average or 0.0 basis points
- Bid to cover 2.45X vs. six-month average of 2.47X
- Directs 23.57% vs. six-month average of 16.5%
- Indirects 51.51% vs. six-month average of 59.0%
- Dealers 24.91% vs six-month average of 24.8%
- The tail 1 basis point is higher than the six-month average of 0.0 basis points
- Directs – a measure of domestic demand – was fairly high at 23.57% vs. six-month average 16.5%
- Indirects – a measure of international demand – was poor at 51.51% vs. the six-month average of 59.0%
- The dealers took just above the six-month average
The auction results were average to below average for most of the majors with the exception of the domestic demand. International demand which accounts for the largest buyers of US treasuries was very weak. Dealers got near the average thanks to the domestic demand but that came as a result of a yield concession of +1 basis point (investors needed a basis point more to buy the issue)
US April consumer credit outstanding +38.07B vs +35.0B expected
- US April 2022 consumer credit data
- Prior was +52.4B
- Revolving credit +20.3B (+19.6%)
- Non-revolving credit +17.7B (+7.1%)
EIA sees faster US oil production growth
- The latest monthly forecasts from the EIA
- Sees 2022 US output increasing 730k bpd vs 720k bpd a month ago
- Sees 2023 output increasing 1050k bpd vs 940k a month ago
We’ve had oil prices surging and these numbers just highlight how difficult it is to bring on production. 10,000 barrels per day in nothing and even adding 1 million barrels next year won’t move the needle as the 1 mbpd release of the SPR runs off.
Commodities
Gold Price Forecast: XAU/USD bears are lurking on continued Failures of a bullish breakout
- Gold is trapped below a critical 4-hour resistance and moving sideways out of the daily trendline resistance.
- The weekly chart’s bias is to the downside and critical US inflation data and central bank meetings could be the catalyst.
At $1,850.06, the gold price is 0.45% higher and trading between a low of $1,837.06 and a high of $1,853.63 on the day so far. The markets are somewhat volatile as traders weigh the fickle outlooks for global growth, the latest of which comes from the World Bank.
”Global economic growth will likely lose momentum this year, with the Ukraine war, soaring inflation and rising interest rates threatening what is now considered a precarious recovery,” the World Bank stated on Tuesday. It expects Real Gross Domestic Product to rise just 2.9% in 2022, significantly lower than a 4.1% rise previously projected in January. The US economy is expected to expand 2.5% this year, down 1.2 percentage points from the prior forecast.
Meanwhile, the US dollar climbed to a two-week high while on the back of rising US Treasury yields that had supported the greenback. However, as measured by the 10-year Treasury yield, they are falling on the second day of trade this week, down from the 3.062% highs to lows of 2.963%. Consequently, the greenback is dropping to the lows of the day near 102.30 at the time of writing, as measured by the US dollar index (DXY), vs. a basket of six currencies.
The lower yields and greenback are supporting the gold price that was already being boosted by the mounting inflation concerns. While the yellow metal yields little compared to bonds, it benefits from the safe-haven bids for the precious metals. The surprise 50-basis-point rate increase in Australia was the catalyst at the start of the day which has jolted the financial markets into a risk-off mode amid concerns over policy tightening ahead of a European Central Bank meeting this week.
The Reserve Bank of Australia’s statement says explicitly that, “the Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.” The stronger language that had been set out in May suggests at least another 50bp increase is on the cards over the next few months, analysts at ANZ Bank argued.
However, whether the precious metal can continue to benefit in a straight line in such a hawkish environment is questionable. As authors at Reuters pointed out, ”although gold is considered a hedge against higher inflation, interest rate hikes remain a potential headwind since that translates into a higher opportunity cost of holding non-yielding bullion.”
In this regard, analysts at TD Securities said in a note that “the gap between gold and real rates may be attributed to both an undue rise in real rates given quantitative tightening, and to the still-massive amount of complacent length being held in gold, keeping the yellow metal’s prices elevated.”
Meanwhile, besides the ECB this week, traders will be looking to the US inflation data due Friday for clues on the Federal Reserve’s interest rate hike trajectory. We are in a blackout period in terms of Fed speakers, so the data will be important ahead of the Federal Open Market Committee meeting on June 14-15 where another 50 basis points of rate hikes are currently being priced in.
WTI crude oil settles at $119.41
- Up $0.91 or 0.77%
The price of WTI crude oil futures are settling at $119.41. That’s up $0.91 or $0.77. The high price reached $120.26. The low price extended to $117.14.
Looking at the hourly chart, the price dipped to its low over the last few hours and in the process retested its 100 hour moving average near $117.26 (the low reached $117.14 just $0.12 below that level). However the price has bounced back higher quickly (the price bounced over $2 in about an hour of trading).
Buyers remain in control
Silver Price Analysis: XAG/USD falls under $22.00 but remains within recent ranges ahead of this week’s US CPI
- Silver fell below $22.00 on Tuesday but remained within recent ranges as traders eye upcoming US CPI data on Friday.
- Further evidence of slowing US inflation coupled with growing fears about US growth add upside risks to precious metals.
- Silver bulls are eyeing a break above $22.50 resistance and a push towards $23.00.
Spot silver (XAG/USD) slipped back below the $22.00 per troy ounce level in quiet trading conditions on Tuesday and was last trading lower by about 0.5% in the $21.90s but still within recent intra-day ranges. Just released US trade data showed the country’s deficit shrinking a little more than expected in April, and this didn’t impact broader market sentiment. Ahead, traders will be watching a speech from US Treasury Secretary Janet Yellen at 1400GMT, but the remainder of the session looks set to remain quiet.
Most XAG/USD traders likely expect the pair to remain stuck within recent $21.50-$22.50ish ranges ahead of this Friday’s US Consumer Price Inflation report, with the 21-Day Moving Average at $21.74 likely to offer some short-term support. Traders are on the lookout for fresh signs that US inflation (and perhaps also Fed hawkishness might have peaked) might have peaked, which could weigh on the US dollar and US yields in the short term.
Given the negative relationship precious metals have to yields and the buck, this could give silver a boost and any US CPI-inspired break above resistance at $22.50 could see silver extend upside towards $23.00 and the 50DMA just above it. A worsening US growth story further adds to the potential upside risks for precious metals, amid a potential increase in the bid for safe havens.
EU News
European equity close: Late rebound mitigates the damage
Closing changes for the main European bourses:
- Stoxx 600 -0.3%
- German DAX -0.7%
- UK FTSE 100 -0.1%
- French CAC -0.8%
- Spain IBEX -0.3%
- Italy MIB -1.0%
Tomorrow is a big day in Europe with the ECB decision coming. A hawkish surprise won’t be met with cheers.
Other News
US: A recession seems inevitable in 2023 – Rabobank
In the view of economists at Rabobank, the US is likely to avoid a recession this year. However, a recession seems inevitable in 2023.
The inevitable recession
“In the US, a recession seems difficult to avoid. Either the exogenous supply shocks are going to bring down business activity or the Fed’s response to high and persistent inflation is going to do the job.”
The timing of the recession will depend on whether it “is caused by exogenous or endogenous factors. Given the strong labor market and robust consumption and investment at the moment, we think that the endogenous will be decisive. This means it is more likely going to be the recession of 2023 rather than the recession of 2022.”
Cryptocurrency News
Bitcoin price dives 7% in hours
Bitcoin (BTC) firmly recommitted to its trading range on June 7 after a fresh move higher was met with a swift sell-off.
“Some of the best chop we’ve seen”
Data from Cointelegraph Markets Pro and TradingView showed BTC/USD rejecting decisively at resistance it last encountered on June 1.
The pair had delivered daily gains in excess of 6%, but the approach to $32,000 changed the mood, and Bitcoin gave back almost $2,500 in a matter of hours.
A classic “Bart Simpson” structure thus formed on hourly timeframes as frustrated traders came to terms with the existing paradigm remaining unchallenged.
“Standard price action again on Bitcoin in which all the lows are swept,” Cointelegraph contributor Michaël van de Poppe wrote in a Twitter update.
If we hold around $29K, still presumably enough reason to go for a slight run. (And $29K area is still CME gap territory).
In addition to the CME futures gap providing a potential target at levels seen before the gains, on-chain analytics resource Material Indicators noted significant buy interest already lined up at those levels.
Should that not hold, targets focused on the area around $28,000 next.
“I will simply be looking for short opportunities in this range,” fellow trading account Crypto Tony continued, nodding to the overall downtrend continuing.
Either we lose the range low and will short a retest, or if we retest the EQ of the range and reject i will look for a short position. Flat until one of these triggers plays out.
One market participant not at all surprised by the short-timeframe action was Filbfilb, co-founder of trading platform DecenTrader.
“Some of the best chop we’ve seen tbh, high quality stuff,” he joked.
I’d say it’s always the same, people desperate not to miss the ‘bottom’ but this one is particularly funny how it’s instantly reversing. Trade chasers getting absolutely ruined.
Stocks correlation blurred
Bitcoin altcoins thus severely underperformed compared with notionally correlated United States equities.
Both the S&P 500 and the Nasdaq Composite Index finished the June 6 trading session above the open, putting their relationship with crypto in question.
Yassine Elmandjra, a crypto asset analyst at ARK Invest, nonetheless noted that Bitcoin’s overall correlation to the S&P had reached new all-time highs on a rolling 30-day basis.