OANDA – Stocks soften ahead of CPI, Claims hits 52 year low, King Dollar, Oil falls stocks lower, Gold lower on strong USD, Bitcoin breaks below $50K
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
US stocks edged lower on growing expectations for a turbo charged taper, potentially more supply chain issues, and as Omicron derails reopening momentum, as companies delay return to the office and cancel holiday gatherings. An impressive jobless claims report could not overcome rising risks to the short-term outlook that stem from virus jitters and fears of an aggressive Fed. The next big move for equities will likely come after the US inflation report which could tilt the scales on how fast the Fed tapers and when we can expect that first rate hike.
The 10-year Treasury yield fell 3.8 basis points to 1.484% as investors grew cautious on Chinese debt.
Jobless claims data showed the labor market recovery remains very strong. Seasonal factors were likely at play but still this is an outstanding number. Initial jobless claims dropped precipitously to 184,000, much better than the 220,000-consensus estimate, also the lowest reading since 1969. Continuing claims are hovering around 1.95 million but are still significantly better than the 19.6 million seen a year ago.
When you combine this jobless claims report with the ‘great resignation’(quits rate still near record highs), the Fed has to acknowledge that the labor market is very tight and that policy decisions are all inflation.
The dollar is looking to keep its crown and tomorrow’s inflation report could help it resume its upward trajectory. Today’s dollar strength is more about euro weakness from speculation that ECB council members will temporarily increase the APP bond buying scheme and commit to QE purchases till the end of next year.
Crude oil prices and US stocks appear to be in lock-step ahead of Friday’s inflation data. Omicron uncertainty and concerns of weakening crude demand snapped a three-day rally in oil prices. Information on Omicron has been fluid, with earlier in the week one study showed a third Pfizer dose neutralized the Omicron variant. The latest news showed that the Omicron variant is 4.2 times more transmissible than the delta variant. For the unvaccinated population, Omicron may be a fast wave and could support the idea that the short-term hit to crude demand will be quick and fast.
Besides incremental Omicron updates, the rest of the week is all about two things: a potentially hotter-than-expected US inflation report that might send the dollar higher and the weekly Baker Hughes rig count which should show more rigs are coming online.
WTI crude should find initial support at the $70 handle and if that holds by the end of the week, the recent rebound may continue.
A strong dollar has gold prices declining towards the lower boundaries of this week’s trading range. Gold could have a make-or-break moment following the US inflation report, which could seal the fate for an accelerated tapering of asset purchases by the Fed. If tomorrow’s inflation report delivers a 7-handle, the Fed will likely double its tapering pace which could suggest a first-rate hike will fully be priced in for the May 4th policy meeting.
Gold traders are awaiting a big move and probably will wait until gold is clearly free from the $1760 to $1800 trading range. Gold’s longer-term bullish outlook remains intact, especially now that some people are talking about a recession in 2023 due to an accelerated tightening cycle by the Fed.
Bitcoin fell below the $50,000 earlier in Asia as global stocks mostly traded in the red. Selling pressure continued in New York as the dollar remained on solid footing. Bitcoin really didn’t do much after CEOs from six major crypto firms made their case for Congress to not get too aggressive with regulation.
Some of the selling pressure is also related to the growing electric shortages in Kazakhstan, which is taking away mining power from the world’s second largest Bitcoin mining country. In the past, when China had outages, we saw significant drops with Bitcoin.
The long-term bull case remains for Bitcoin, but everything in the short-term seems bearish. Bitcoin will need to overcome growing expectations for a stronger dollar, an extended altcoin season, and short-term bearishness for risk assets as Omicron derails reopening momentum.
Article By Edward Moya, OANDA