Powell signals Fed needs to be nimble, Canada Inflation hits near 40-year high, Oil crushed on recession fears, Gold steadies, Bitcoin tries to hold $20k – OANDA
After what might be the worst first six months of the trading year for the S&P 500 since the 1970s, US stocks were ready to turn positive over the slightest hint that the Fed may change their aggressive tightening course. Equities rallied after Powell said the Fed will need to be nimble in responding to incoming data and the evolving outlook. The stock market rally faded as Fed Chair Powell acknowledged that they need to do their job and get inflation back down and that it is a possibility that they could send the economy into a recession. Powell can’t remain upbeat on the economy and his comment that it will be very challenging to achieve a soft landing speaks to that.
Electron Capital returned 3.1% for October, bringing its year-to-date return to 8.3%. The MSCI ACWI gained 6% for October, raising its year-to-date return to -22.3%, while the S&P 500 returned 8% in October for a year-to-date loss of 18.8%. The MSCI World Utilities Index was up 2.7% for October but remains down 13.5% year to Read More
The headlines on Wall Street were mixed today as some companies reported strong earnings results, Revlon filed for Chapter 11 bankruptcy, JPMorgan announced layoffs in the mortgage business, and as the US FDA is preparing to order Juul to remove e-cigarettes off the US market.
Fading stock market bounces will still remain the go-to trade on Wall Street until the economic data dramatically weakens and the Fed pivots so that they may ease up their tightening of policy strategy. The Fed is starting to become a little more pessimistic as they are finally acknowledging it will be 'very challenging' to achieve a soft landing, but nowhere near enough for traders to expect a pivot over tightening anytime soon.
Inflation stays hot in Canada, surging to the fastest pace since January 1983. This inflation report was much hotter-than-expected as food and energy prices surged from 13.9% to 16.4%. With headline and core inflation showing no signs of easing, the BOC will remain aggressive with tightening policy and will most likely send interest rates to 3.50% by the end of the year.
Oil volatility will remain elevated now that opposing opinions are emerging on where prices will finish the year. Oil prices are under pressure as global recession fears accelerated crude demand destruction calls. Inflation and growth concerns won’t be improving anytime soon and that has all the short-term drivers turning negative for the crude demand outlook.
Citigroup's Morse is expecting oil to fall to the $80s by the fourth quarter, while Goldman's Currie is sticking to his supercycle call for oil, noting that is has the potential to get tight over the next three to six months.
Fed Chair Powell’s testimony to Congress is keeping the inflationary focus for financial markets and will keep traders expecting more rate hikes as they try to tame inflation. Crude pared losses as risk appetite returned following Fed Chair Powell's testimony.
Gold prices steadied as doom and gloom has taken over Wall Street. Fed Chair Powell’s testimony was reiteration of their commitment to bring down inflation with aggressive rate hikes that may send the economy into a recession. All the economic data is starting to show a weakening economy that will drive up demand for safe-havens.
Demand for Treasuries remains strong and some of that is spilling over into gold. The dollar is weaker as traders believe Powell is wrong about his assessment of the economy being strong and that has been good news for bullion. The Fed isn't anywhere near ready to pivot on tightening, but their acknowledgement that a soft landing will be very challenging to achieve, suggests they could change their tune by the end of summer.
Bitcoin remains a shadow to US stocks and pared losses after Fed Chair Powell pledged to be nimble, prompting traders to believe they might not be too aggressive with tightening once they believe the economy has significantly weakened.
The global crypto market remains vulnerable to further selling pressure, but a consolidation could be around the corner as the challenging macro environment is close to being fully priced in.
Sentiment for cryptos remains at depressed levels, but the selling momentum is showing signs of exhaustion. A $500 million outflow from North America’s first Bitcoin ETF could be the capitulation that is needed to form a short-term base for Bitcoin.
Bitcoin won’t have a solid bottom in place until we see stocks make a strong comeback from bear market territory.
Article By Edward Moya, OANDA