North American News
NASDAQ has its best day in over 2 years. Powell eases markets fears
- Major indices rebound strongly
The major US stock indices have closed sharply higher:
- Dow industrial average rose 434.44 points or 1.37% at 32196
- S&P index rose 102.27 points or 2.61% at 4023.31
- NASDAQ index rose 469.86 points or 4.06% at 12032.43
- Russell 2000 rose 43.08 points or 2.39% at 1848.33
All major sectors of the S&P moved higher:
- tech rose 4.29%
- communication services rose 5.10%
- consumer discretionary rose 3.85%
- energy rose 2.21%
The weakest component was utilities which rose 0.10%. Healthcare rose 0.64% in consumer staples rose 0.7%
Atlanta Fed GDPNow final Q2 reading -1.2% vs -1.6% prior
- This is the last tracking estimate ahead of tomorrow’s release
The Atlanta Fed boosted its final Q2 GDP tracker to -1.2% from -1.6% ahead of tomorrow’s release. The consensus is +0.5% but it’s been sliding this week and there are plenty of bets on a negative number.
The report today said:
After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of the contribution of inventory investment to second-quarter real GDP growth increased from -2.50 percentage points to -2.30 percentage points, while the the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.18 percentage points to 0.59 percentage points.
Powell opening statement: Another large hike dependent on data between now and then
- Highlights of the opening statement from the Fed chair on July 27, 2022
- Inflation is much too high
- Business fixed investment looks to have declined in Q2
- Labor market is extremely tight
- Wage growth is elevated
- Price pressures are broad
- Although prices for some commodities have turned down, earlier surge has boosted prices and inflation pressure
- There is still additional upward pressure on inflation
- We’re highly attentive to inflation risks
- We are looking for compelling evidence of inflation coming down
- The pace of hikes will continue to depend on incoming data and evolving outlook
- Another unusually large increase could be appropriate but it’s dependent on data between now and then
- Inflation has surprised to the upside in the past year so we will need to be nimble
- There’s some anecdotal evidence it’s getting a bit easier to find workers
- Employment cost index on Friday will be important indicator
- We want to see demand running below potential for a sustained period
- Will watch PCE and CPI but think PCE is the best measure of inflation
- We need to see inflation coming down
- Says he doesn’t know what GDP will be tomorrow, hasn’t seen it. Notes that advance release is revised multiple times
- Notes that breakevens have come down
- I don’t think I would do Sept 2020-style forward guidance again
Commodities
Gold rallies on slight Dovish tilt at the Fed, all eyes on Powell
- Gold price is on the bid following a slightly dovish tilt in the Fed’s statement.
- The Fed chairman’s presser will likely cause greater volatility as investors seek clarity.
The gold price has rallied on the back of the Federal Reserve’s interest rate decision which has weighed on the greenback and has left US yields in limbo, slightly lower now after 20 minutes post the statement’s release in the 2 and 10-year yields.
XAU/USD popped to a session high of $1,727.09 from a low of $1,711.56 as the central bank downgrades the economy but remains focussed on inflation risks, as per the statement, repeating that it is `highly attentive’ to inflation risks.
Main takeaways from the statement
- The Fed says recent indicators of spending and production have softened.
- Fed says job gains have been robust, unemployment rate has remained low.
- Fed says inflation remains elevated, reflecting pandemic-related imbalances, higher food and energy prices, and broader price pressures.
The Fed funds rate futures forecast 3.4% in December after a 75 basis point hike. That leaves 107 basis points of tightening for the remainder of 2022.
Overall, the outcome is somewhat dovish for the September meeting. The fact that the Fed is acknowledging risks to spending and production, the markets will be tuned in to the Fed’s chairman’s presser at the bottom of the hour for further insight and what the implications are for the labour sector.
If Powell confirms the market’s lowering of rate hike expectations for later this year and early next year, that would likely cement the bearish sentiment around US yields and potentially weigh on the US dollar, lifting risk assets and commodities, including gold. With that being said, the US dollar can benefit from safe-haven flows as well in the face of a global slowdown.
”Barring a dovish scenario, we expect participants to return their attention to the massive and complacent position held by prop traders, which still hold the title as the dominant speculative force in gold,” analysts at TD Securities said with respect to today’s Fed outcome.
” We have yet to see capitulation in gold, suggesting the pain trade is still to the downside and that the recent rally will ultimately fade when faced with a wall of offers.”
US weekly crude oil inventories -4523K vs -1037K expected
- US inventory data
- Prior crude -446K
- Gasoline -3304 vs -857K expected
- Distillates -748 vs +500K expected
- Cushing +751K
- Refinery utilization -1.5%
- US implied oil demand (product supplied) fell by 1.049 mbpd
- Implied motor gasoline demand 9.25mbpd vs 8.52mbpd last week
The SPR drew by another 5604K barrels, which continues to run shy of the 1 mbpd target.
EU News
European equity close….Solid gains
- Euro and pound largely flat on the day
- Stoxx 600 +0.5%
- FTSE 100 +0.7%
- German DAX +0.6%
- French CAC +0.8%
- Italy MIB +1.5%
- Spain IBEX +0.75%
Other News
Gazprom’s Markelov: Only one gas processing unit working at Nord Stream 1
“Currently, only one gas processing unit is working at the Portovaya compressor station at the Nord Stream 1 gas pipeline,” Gazprom Deputy Chief Executive Vitaly Markelov said on Wednesday, as reported by Reuters.
“Other units require maintenance or servicing by Siemens,” Markelov said and noted that they haven’t received the engine from Siemens.
“There are sanctions risks for engines,” he further added. “Siemens is not working to solve problems.”
Cryptocurrency News
Crypto makes huge gains as Powell eases off the economic brakes
- Bitcoin up 9%, ethereum up 16%
There’s a big unwind of all kinds of safe-haven trades at the moment. Stocks are roaring and the US dollar is sinking across the board. However the biggest moves are in crypto with bitcoin up 9% and ethereum up a whopping 16%.
The shift came after Powell downplayed the odds of another 75 basis point hike in September and shifted the Fed to a meeting-by-meeting stance that’s focused on data.
Unfortunately that still doesn’t wipe out the declines in the past two days but I see it as a rejection of the break lower. A complete rejection would come on a break of 1664, which is about $60 above spot.