North American News
Major US indices limp into the close
- Close nearer to session lows
The major US indices opened higher. The Nasdaq was up for the 3rd day and the Dow and the S&P were following up the Friday gains with another solid start.
The S&P moved up 1.01% at the high. The Dow was up 1.14% and the Nasdaq was up 1.54%
However, oil continued it’s move to the upside. US yields remained in positive territory for the day and momentum started to fade.
The closing levels are showing:
- Dow fell -215.66 points or -0.69% at 31072.62
- S&P fell -32.31 points or -0.84% at 3830.86
- Nasdaq fell -92.36 points or -0.81% at 11360.06
- Russell 2000 fell -5.95 points or -0.34% at 1738.41
US July NAHB home builder sentiment 55 vs 65 expected
- Survey of sentiment of US home builders
- Prior was 67
- Current single-family home sales 64 vs 77 prior
- Sales over the next six months 50 vs 61 prior
- Index of prospective buyers 37 vs 48 prior
This is a big miss but I’m not entirely surprised by it. There’s been plenty of talk from home builders about a sudden stop in demand and interest.
Commodities
Gold Price corrects as US dollar slides on Dialed down Fed Response sentiment to inflation
- Gold Price s correcting the weekly and daily impulses.
- The focus is on the US dollar and the path of the Federal Reserve.
- The 50% mean reversion and a 38.2% Fibonacci retracement are brought into focus.
Gold Price (XAU/USD) has been attempting to correct as the US dollar pulled back slightly as markets weigh the the prospects of a 75-basis-point interest rate hike over a 100bp hike by the Federal Reserve at its upcoming meeting on July 26-27.
In turn, the US dollar has lost some shine to trade back below 107 on Monday as per the DXY index which measures the greenback vs. a basket of major currencies. It was trading as high as 109.29 in a fresh bull cycle high last week. Overall, both the technical and fundamental bias has been to the downside but a correction is in play in both the US dollar and gold.
To date, within gold’s bear cycle, the break in daily market structure and prospects of a strong US dollar as well as higher yields, which gold does not offer to investors, have weighed on the precious metal into pre-pandemic levels. The greenback has tended to strengthen both when the US economy outperforms its peers and also when the US economy looks weak.
Weighing up the Fed
Fedspeak has pushed back against a 100bp hike from some notable hawks, raising the risk of a near-term short-squeeze on the Gold Price prior to the meeting. However, this could create the perfect storm for a downside continuation in gold on a hawkish outcome from the meeting.
The Fed has moved into the blackout period before the next meeting leaving prior statements from Fed speakers following the last meeting and to date for the market to chew on. Ahead of the blackout, the Fed’s Beige Book released last week noted that price increases remained “substantial” across the nation in recent weeks, though some regions saw signs of cooling inflation.
Meanwhile, Fed officials implied that nothing was off the table after the CPI report. US inflation surprised once again to the upside in June, both headline and core measures, with annual inflation jumping to a new four-decade high of 9.1%, up from 8.6% in May. Therefore, supportive of global yields and the US dollar as a headline for gold prices, the market expects that the Fed will be in no rush to signal a pivot from its current path of aggressive rate hikes and is pricing in steeper hikes of 100bs pints for not only in July but September’s meeting as well.
At the June FOMC meeting, Chair Powell stated that he would need ‘compelling evidence’ that inflation is easing for the Fed to change course, which he defined as ‘a series of falling monthly inflation readings’. Since then, we have heard from Fed’s Raphael Bostic who said “everything is in play” while Mester said there was no reason for a smaller hike. Mary Daly, CEO of San Francisco said 75 bp was her “most likely posture.”
The US dollar loses some gloss, supports gold price
The dollar index (DXY) was off its near 20-year high, down 0.6%, making greenback-priced bullion less expensive for buyers holding other currencies. It made a low of 106.892 on Monday which is giving some support to the gold price. Nevertheless, earnings season is upon us. There are likely to be gyrations that could lead to some buying activity in the greenback for its save haven function stemming from its use as an invoicing currency and from the significant amounts of USD-denominated debt issued by non-US residents.
Simply put, in times of uncertainty various market participants take action to secure their access to USDs. In turn, the pull on the gold price is likely to persist, at least until the Fed’s front-loaded policy tightening cycle is near conclusion.
”There is no way around it, the Fed has an inflation problem on its hands and the USD will continue to remain king of FX,” analysts at TD Securities argued.
Gold Price expectations from TD Securities
Gold prices have crossed the threshold for a trend reversal, marking confirmation of a bear market trading regime in the yellow metal, for the time being, the analysts at TD Securities said. Their ChartVision Trend analytics highlighted that a break below the $1821/oz level by September would cement a downtrend in the yellow metal.
”With gold bugs falling like dominoes, prices have since slashed through various support levels on their way towards the $1600/oz-handle. With prices now challenging pre-pandemic levels, the largest speculative cohort in gold will start to feel the pain under a hawkish Fed regime as their entry levels are tested.”
Finally, the analysts argue that considering the latest CFTC report highlights that although a massive amount of longs was liquidated over the past week, the prop-trader cohort continues to hold an extremely large position size. Therefore, ”in a liquidation vacuum, these massive positions are most vulnerable, which suggests the yellow metal remains prone to further downside still.”
Oil climbs $5 in impressive rally but there’s still technical work to do
- WTI crude oil settles up $5.01 to $102.60
The crescendo of oil selling last week was on fears that President Biden would leave the Middle East with concrete pledges to pump more oil.
“Based on what we heard on the trip, I’m pretty confident that we’ll see a few more steps in the coming weeks,” he said.
In terms of the outlook, the backwardation of the market is bullish and so are the large premiums that some grades are getting in the physical market.
On the negative side, last week’s US gasoline demand numbers were shockingly low, suggesting that demand destruction is taking place. Some warn though that could have been a holiday skew
With US gasoline prices falling for a month straight, the demand could quickly return as well.
EU News
European equity close: A hot start to the week in more ways that one
- Hot, but not quite 37-degrees hot
A heatwave may lead to the highest-ever recorded temperatures in London today and the entire continent has been stuck in a brutal heatwave that’s worsening the energy crisis.
Despite all that, European stocks started the week with some decent gains, albeit they gave some back in the last 3 hours.
- UK FTSE 100 +0.8%
- German DAX +0.5%
- French CAC +0.8%
- Italy MIB +0.9%
- Spain IBEX +0.1%
Other News
ECB to signal end of an era this week; Expect 25bp but more is not unthinkable – BofA
Bank of America Global Research discusses its expectations for this week’s ECB policy meeting on Thursday.
“We expect a 25bp ECB hike, but more is not unthinkable. Lagarde will likely leave door open for more than 50bp in Sept. OMT-light tool may not be all ready yet, but we should still get partial announcement at least. We think conditionality/triggers will invite market testing on new tool. Italy’s latest political developments are not helping. We are short the front-end and in flatteners outright and cross market. We see risks that the anti-fragmentation tool may surprise a market very underweight the periphery,” BofA notes.
Cryptocurrency News
Bitcoin extends away from its 100 and 200 are moving averages
- Digital currency taps the swing high on July 8
The price of bitcoin has seen a run to the upside in trading today. The low price was at $20,757.29. That low was near rising 100 and 200 now moving averages. Basing near that levels was a bullish development technical and helped to pave the way for the upside run.
The high price extended to $22,503. On the move to the session high, price extended above the July 8 high of the $22,401, but could not sustain upside momentum. The price has rotated modestly back to the downside and currently trades at $22,198.73.
Ethereum has climbed 50% in five days as the Merge trade sizzles
- Ethereum hits $1500 from $1000 on July 13
The catalyst for the jump in ethereum is the switch from an energy-intensive proof-of-work system to a more efficient proof-of-stake system. This will cut energy consumption by 99.95% and is called the Merge. Ethereum Foundation officials are aiming for September 19 as the launch date.
Whether that transition is successful will be a major factor in ethereum and crypto in H2.