Wall Street digests mixed retail earnings, Mester remains very hawkish, Oil market stays tight, Gold ready to shine, a Crypto fund ordered to liquidate – OANDA
US stocks softened after key earnings from retailers provided limited optimism for the rest of the year and as rising long-term inflation expectations could tilt the Fed into sending the economy into a recession. Record inflation for Spain caught everyone’s attention, as traders shrugged off the temporary improvement with pricing pressures from Germany, which are only coming down from the highest levels in nearly a century.
No one wants to buy the dip anymore after seeing a few stock market rebounds get completely faded. Investors removed $10 billion out of equity funds last week and it doesn’t seem likely that sentiment will dramatically improve that the Fed will be able to deliver that soft landing.
Nike (NYSE:NKE) delivered strong earnings, but a cautious outlook was what traders focused on. COVID lockdowns in China and a weakening US confirms are the two big red flags for the outlook for the rest of the year. The world’s largest sportswear company is struggling with rising transportation costs and longer shipping times. If the retail giants and their preferred vendor and shipping relationships are still having trouble getting and shipping goods, that does not bode well for the smaller shops.
Bed Bath & Beyond (NASDAQ:BBBY) posted terrible results, the CEO is leaving, and the outlook will not be improving anytime soon as the consumer is weakening and as supply chains issues persist.
In Europe, H&M (STO:HM-B) gave a nice earnings report that included strong margins and a share buyback announcement. The Swedish retailer was a beaten up stock so today’s rally should be taken with a grain of salt.
Now is not the time for Fed Chair Powell to abandon his hawkish stance at the ECB forum. After hearing from hawkish Fed member Loretta Mester, investors are nervous the board could be pressured to send rates above 4% next year. Mester noted that inflation could rise further from now and that it is very necessary to get inflation down. With longer-term inflation rising, Mester will likely advocate for a 75 basis point increase in July and traders should not be surprised if she maintains that stance in September
Crude prices rallied as the oil market looks like it will remain very tight after indirect nuclear deal talks between the US and Iran ended without result. The supply outlook for crude is looking vulnerable and could see some disruptions lead to much higher oil prices. Ecuador’s oil production is declining rapidly, down 1.8 million barrels during the 15 days of protest. Libya is suspending oil exports from the Es Sider port.
Unless the EIA crude oil inventory report posts a surprising large drop in demand and significant production increase, oil prices should be poised to climb higher.
Gold prices are higher as the bond market selloff eases. After inflation hit a record high in Spain, pressure has grown for the ECB to be a bit more aggressive and that helped soften the dollar. Risk appetite will struggle to return here as inflation continues to hamper the outlooks for most companies. Gold is still stuck in a wide trading range, but a collapse below the $1800 seems less likely as the dollar peak might be in place. Wall Street will likely lean towards anticipating more rate hikes from the ECB, that will drive a weaker dollar, and weakening growth outlooks which should prompt the safe-haven buying of gold.
The news cycle has been pretty awful for crypto markets. After reports of default, it comes as no surprise that Three Arrows Capital, a cryptocurrency-focused hedge fund has been ordered to liquidate. Concerns are growing that the collapse of Three Arrows Capital could trigger further market contagion. The British Virgin Islands court ordered the liquidation and that reminds traders that whatever crypto regulation takes hold, it will likely be bold and global.
Bitcoin is under pressure and struggling to hold onto the $20,000 level. There is a big risk that we could see miners be forced to unload some of their holdings as they’ve overcommitted with GPUs. The big transition to a proof-of-stake (POS) for Ethereum is a game changer that could hurt miners who financed a lot of hardware.
If Bitcoin breaks below the recent low around $17,500, there isn't much support until the $14,500 level.
Article By Edward Moya, OANDA