North American News
Major indices have their worst week since January. NASDAQ index tumbles -5.6%
- Indices close near lows
The stronger than expected CPI reversed pre-market stock gains and pushed the major indices lower. A weaker Michigan consumer sentiment didn’t help with the overall sentiment.
- The weekly percentage declines in the Dow, S&P, and NASDAQ was the worst since January 21
- Major indices closed near lows for the day
- Dow Jones is down down 10 of the last 11 weeks
- NASDAQ and S&P is down 9 of the last 10 weeks
- All 11 S&P sectors were lower the worst sector was consumer discretionary which fell over 4.1%. Technology 3.9%, Financials fell -3.65%. Consumer staples was the best performer at -0.38%
The final numbers are showing:
- Dow industrial average fell -880.02 points or -2.73% at 31392.80
- S&P index fell -116.96 points or -2.91% at 3900.85
- NASDAQ index fell -414.19 points or -3.52% at 11340.03
- Russell 2000 fell -50.57 points or -2.73% at 1800.28
For the trading week:
- Dow fell -4.58%
- S&P index fell -5.08%
- NASDAQ index fell -5.6%
- Russell 2000 fell -4.41%
Looking at the Dow 30, the worst performers were:
- Dow, -6.06% -6.06%
- Goldman Sachs -5.48%
- Boeing, -5.05%
- J.P. Morgan, -4.65%
- Salesforce, -4.6%
The only winning stock in the Dow was Walmart with a gain of +0.63%
- Verizon fell -0.16%
- Procter & Gamble fell -0.36%
- Walgreens boots fell -0.43%
- Coca-Cola fell -0.58%
After the close Tesla has proposed a 3 for1 stock split. The stock closed at $696.69. In after-hours trading it is trading up to $716.23.
Amazon shares went through their 20 for 1 stock split this week. For the week after a rise on Monday, the shares are ending the week down -10.38%.
US May CPI +8.6% y/y vs 8.3% expected
- US May 2022 inflation data
- Prior was 8.3% y/y
- m/m reading +1.0% vs +0.7% expected and 0.3% prior
- CPI index at 292.296 vs 291.661 prior
Core CPI:
- y/y 6.0% vs 5.9% expected and 6.2% prior
- m/m +0.6% vs +0.5% expected and +0.6% prior
Details:
- CPI energy +3.9% vs -2.7% prior
- Gasoline +4.1% vs -6.1% prior
- New vehicles +1.0% vs +1.1% prior
- Used vehicles +1.8% vs -0.4% m/m prior
- Owners’ equivalent rent +0.6% m/m vs +0.5% prior
- Food +1.2% vs +0.9% prior
- Real weekly earnings -0.7% m/m
I suspect much of the risk-averse price action on Thursday was related to jitters ahead of this report but those jitters were confirmed. This is a terrible report with inflation rising 1.0% in the month in a broad-based way.
US June prelim UMich consumer sentiment 50.2 vs 58.0 expected
- Preliminary UMich consumer sentiment data
- Prior was 58.4
- Current conditions 55.4 vs 62.5 prior
- Expectations 46.8 vs 54.5 prior
- 1-year inflation 5.4% vs 5.3% prior
- 5-10 year 3.3% vs 3.0% prior — highest since 2008
These numbers are terrible. This is the lowest reading ever in this series, which dates back to the 1970s.
US 2-year yields hit 3% for the first time since 2008
- Short-term borrowing rates are jumping
The 2018 high of 2.977% in US 2-year note yields just broke, which puts short-term rates at the highest since 2008.
Barclays is just out with a note forecasting the Fed will hike rates 75 basis points next week. That would go against what officials have said but it would be a good time for a surprise.
The Fed funds market is now pricing 3.16% Fed funds at year-end and if that’s the case then 2s above 3% are inevitable. At the same time, there’s gotta be demand for a guaranteed 3% for two years in a market like this.
Further out the curve, inversion looms again. US 10s held the line early but are now up 9.7 bps to 3.138%.
Commodities
Gold Price Forecast: XAU/USD soars to $1870 as bears capitulate
- Gold hits weekly highs despite higher yields.
- XAU/USD is testing the $1870 resistance area.
- DXY and US yields are at the highest level since May 9.
Despite higher US yields and a stronger dollar, gold prices are soaring on Friday. XAU/USD rebounded again at the $1830 but this time it broke $1850 and a few minutes later reach $1870.
Gold finally reacting to inflation?
After the US May CPI report, XAU/USD bottomed at $1824, the lowest level in three weeks as Treasury yields move higher. After moving sideways in a wide range, gold broke above $1850 and gained more strength.
Technical factors and probably the yellow metal finally reacting to inflation, are boosting gold. In the short term, bears appear to be capitulating. The rally in gold is taking place even as the dollar and US yields soar.
The DXY is up by 0.80%, at 104.15, the highest level since May 17. The US 10-year yield stands at 3.15% and the 30-year at 3.22%, both at the highest since May 9. At the same time, the Dow Jones and the S&P 500 are falling by more than 2%.
Usually, a context of higher yields, risk aversion and a stronger dollar is negative for gold. During the last hour, it has not been the case. From the daily low, XAU/USD has risen so far $45.
Form a technical perspective, if XAU/USD holds above $1870 it would point to more gains. The next strong barrier is seen at $1890. On the contrary, a reversal from current levels, back under $1850 would put gold back under pressure.
Silver Price Forecast: XAG/USD marches firmly towards $22.00 post-hot US inflation, weak consumer sentiment
- Silver climbs on Friday but is still down in the week by 0.24%.
- US inflation rebounded from April’s 8.3% dip and rose strongly.
- The UoM consumer sentiment is at a 50-year low; stagflation looms?
Silver (XAG/USD) advances after seesawing earlier in the day, reaching a three-week low at $21.27, but staged a recovery after the University of Michigan Consumer Sentiment slumped the most in 5 decades. At the time of writing, XAG/USD is trading at $21.82, erasing earlier losses and now gaining 0.57%.
In the meantime, the US Dollar is rallying to fresh three-week highs, at 104.174, gaining 1.96%. At the same time, the US 10-year Treasury yield is rallying to new four-week highs at 3.14%, up by twenty basis points.
US consumer sentiment plunges, and US inflation rose to 4-decades highs
US consumer sentiment plummeted the most in 5-decades, following an inflation report that in the previous two months before May reading fell though rebounded to 8.6% YoY.
The University of Michigan’s consumer sentiment dipped towards 50.2, from 58.4, the lowest slump in 52 years. Joanne Hsu, director of the survey, said, “Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon.”
“While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth,” Hsu said.
Earlier in the day, the Department of Labor reported that the Consumer Price Index (CPI) for May rose by 8.6%, higher than the 8.3% expected, data showed on Friday. The so-called core CPI, which excludes food and energy prices, increased by 6% YoY, also above expectations.
That further reinforces the necessity for Fed’s aggressive action if they are going to tackle inflation down.
Commerzbank analysts, in a note, expressed that the Federal Reserve is behind the curve. They added, “It is becoming increasingly clear that the Fed was too late in raising interest rates. Everything therefore points to further significant rate hikes. We expect interest rate hikes of 50 basis points at each of the next three Fed meetings. At the end of the year, the key interest rate should stand at 3.00%, and at 3.50% in spring 2023. But even with this forecast, the risks are now clearly on the side of even stronger hikes.”
US crude falls 84-cents on Friday but wraps up a seventh-straight week of gains
- Oil down 84-cents to $120.67 to close above $120 for the first time since 2008
It’s been seven terrible weeks for most global financial markets but seven straight weeks of gains in crude oil.
WTI finished down by 84-cents on Friday but climbed $1.80 on the week. It’s the highest finish to a Friday since 2008.
Earlier this year oil spiked as high as $130.50 when the Ukraine war broke out but it was a short-lived spike and finished that week at $109.33.
The latest rally has come on signs of persistent shortages despite Chinese lockdowns, more OPEC supply and the SPR release. The next challenge is the risk of rapidly-slowing global growth amidst higher rates.
So far though, crude has passed all the tests and technically, not much stands in the way of a return to $130.
Even today with all the bearishness in stocks and bonds, the 0.7% decline is hardly material. WTI fell as low as $118.33 but rebounded more than $2 from the lows.
For the weekend, two spots to watch are Libya and Norway. In Libya, rebels are threatening to block another port while in Norway workers could announce a strike.
Demand destruction is likely creeping in, in part because gasoline and diesel prices are even-higher than they should be, because of refinery problems. Yesterday, US retail gasoline prices hit $5/gallon on average nationally for the first time.
EU News
European equity close: Italy leads the Free fall
- Closing changes for the main European bourses
Europe is getting hammered by inflation worries, rate hikes and the potential for a sovereign debt crisis, which is why Italy underperformed today.
- Stoxx 600 -2.7%
- UK FTSE 100 -2.1%
- German DAX -3.1%
- French CAC -2.8%
- Italy MIB -5.0%
- Spain IBEX -3.8%
European stocks had held up much better than US stocks since the March low, in part because of far less tech exposure and lower multiples. But then you get a day like today where Italian stocks cut through support in a 5% fall and it’s a reminder of the risks.
Other News
When will the Fed stop? A look at the path that’s priced in for the FOMC
- New questions arise about the top of the Fed mountain
It’s increasingly clear that the Fed is now in the middle of one of the most-rapid tightening cycles ever. For next week’s meeting, the market now sees an 18% chance of a 75 basis point hike with at least 50 bps as a certainty.
Just a few weeks ago there was talk about a pause after another 50 bps hike in July but now at least 50 bps more is priced in for September with more beyond.
Here’s the most likely path, as implied by Fed funds futures:
June 15: 50 bps to 1.25-1.50%
July 27: 50 bps to 1.75-2.00%
Sept 21: 50 bps to 2.25-2.50%
Nov 2: 50 bps to 2.75-3.00%
Dec 14: 25 bps to 3.00-3.25%
That would be a cycle of five straight 50 basis points hikes (including last month) with the Fed trying to get back ahead of the curve. Into 2023, hikes continue to be priced up to 3.50-3.75% at this time next year.
Cryptocurrency News
Bitcoin falls to the lowest level since May 29
- Falls to a low of $28,832.83
The price of Bitcoin has moved to a new low for the day and lowest level since May 29. The low price just reached $28,832.83. The price currently trades at $29,000.
Looking at the hourly chart, the price has been trading above and below the 100 and 200 hour moving averages since June 8.. The trading today however has been able to stay below the higher 100 hour moving average giving the sellers the bias advantage. As always, trading below the moving averages is more bearish while moving above tilt the bias more to the upside.
The price also moved below a floor area near $29,197. That is made close risk level for sellers looking for more momentum on the break. On the downside March 20 $8615 followed by the $28,000 level low from May 26). Move below $28,000 and it opens the door for further selling momentum.
Ethereum takes out a major level in a fall to the lowest since early-2021
- The chart of ethereum isn’t pretty
The chart is a red flag for global crypto.
Ethereum has challenged the $1700 level a half-dozen times since definitively breaking above it in March 2021.
With today’s 6.3% decline, it’s now at the lowest since then. The $1700 level or just below was repeatedly challenged and held several times in a major way. The chart illustrates how it’s such a pivotal level.
Bitcoin has similarly made several lows in the $28,800/$29,000 level, along with one spike brief down to $25,390 in May. It’s also challenging those lows.
We’ve seen plenty of pain in crypto since the luna and UST fiasco. This is a delicate moment and a spot to watch closely.