OANDA – Global bond yields slide as stocks rebound, US data, Oil pares gains, Gold steady, Bitcoin rallies
US stocks breathed a tentative sigh of relief now that the bond market selloff appears to be taking a break. In just a few weeks, Wall Street has gone from pricing in a gradual tightening of policy to a hurry-up offense that could deliver 4 to 5 rate hikes this year and a balance sheet reduction kickoff this spring. Fed tightening expectations have been overdone and investors are now scaling back into risky assets.
Investors quickly shrugged off a rather hot initial jobless claims report that rose to the highest level since October. Filings for jobless claims increased by 55,000 to 286,000, much higher than the expected forecast of 225,000. Holiday and covid closures were at play and likely impacted the high jobless claims reading.
The hot housing market saw a rare miss with existing home sales as record low inventories and surging mortgage rates led to a slowdown in purchases. This is not the top for the housing market as some seasonal factors and Omicron likely weighed on the decline in home sales. For the full-year sales hit 6.12 million, an increase of 8.5% from 2020, which was the best year since 2006. The housing market is not slowing down just yet, that may happen after a couple Fed rate hikes.
Crude prices initially shrugged off a mostly bearish EIA crude oil inventory report. Shortly after the weekly oil report release the Russian Energy ministry noted refiners continue to struggle to have minimal crude capacity offline. The oil market remains very tight and despite the EIA’s surprise build with crude oil inventories and greater than expected gasoline build, crude prices are poised to head higher.
The EIA report showed US production remained steady at 11.7 million barrels a day. The headline build of 515,000 barrels per day was the first increase in eight weeks, a big miss of the expected 1.3 million draw. Jet fuel inventories remain close to record lows. Omicron was a drag on gasoline exports, sending them to the lowest levels since June 2020. Demand is moderating, but seasonal factors are at play.
Brent crude was fifty cents shy of the $90 level and that might hold unless a fresh catalyst emerges. Oil prices are widely expected to head higher, but catalysts will be needed to break past key psychological levels.
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Gold is slowly getting its groove back as Treasury yields continue to edge lower from recent highs. Gold didn’t do much today as safe-haven demand was light as stocks bounced back. Softer jobless claims and existing homes sales data helped rates drift lower, but the focus today was mostly on a wrath of strong earnings results.
A big wild card for gold is what will happen with Russia-Ukraine tensions, but the risks are growing and a small-scale attack could happen. Geopolitical risks and surging global inflation should keep on providing gold underlying support going forward. Gold’s next upside target includes the $1880 level, followed by the psychological $1,900 level.
Bitcoin shed earlier gains after the Russian central bank proposed a ban over use and mining of cryptocurrencies on Russian territory, claiming the digital currency poses a risk to the financial stability and monetary policy sovereignty. The Russian ruble has been steadily declining over the past couple decades, which made Bitcoin an attractive investment for many Russians in recent years. Russia has been a top three country for Bitcoin mining, so if this proposal passes, Bitcoin could slide below the $40,000 level.
Cryptos remains the perennial risky asset and if Treasury yields continue to decline, that should be good news for Bitcoin.
Article By Edward Moya, OANDA