US Close – Rollercoaster stock market after Pelosi arrives in Taiwan, Fed nowhere near done hiking, JOLTS miss, Oil rises, Gold lower on strong dollar, Bitcoin steadies

US stocks went on a rollercoaster ride as traders grew nervous over China’s retaliation over House Speaker Pelosi’s trip to Taiwan, a reminder from Fed’s Daly that their interest rate hiking cycle is nowhere near done, and further signs the labor market is cooling but still remains tight enough for the Fed to deliver a couple more rate hikes. China’s response to Pelosi’s trip to Taiwan could have an impact on supply chains and demand, which could keep the inflationary pressures going strong. Traders are starting to bet that the Fed won’t take rates much above neutral.  Money markets are showing

China announced they will be doing military drills and live fire exercises in the waters and airspace encircling Taiwan from August 4-7^th. No one doubted China would react, so that is why markets did not overreact. 

The big surprise of the day was news that Contemporary Amperex Technology Co. Ltd. (CATL) will delay its North America plant announcement for now.  The Chinese battery maker giant’s decision to hold off their announcement of a multibillion-dollar North America plant will impact Ford and Tesla directly.  Big deals with Chinese companies could see further delays until US-China tensions ease. 

Fed

The Fed is clearly committed to front-loading rate hikes to combat inflation. Fed’s Daly reminded Wall Street that the Fed’s work on inflation is ‘nowhere near almost done.’  Daly is optimistic about the labor market and does not see a labor market that is in a recession.  Fed’s Evan said a half-point increase in September is reasonable, but that a 75-basis point increase could be OK.  The Fed’s Mester reiterated they have to get inflation under control and that they have a narrow path to engineer rates without hurting jobs. 

This round of Fed speak suggests markets might be a little too optimistic into pricing in a Fed pivot and that rate cut calls for next year are too optimistic.  

JOLTS

Job openings are dropping and that is a clear sign that Fed’s rate hikes are tightening labor market conditions. Two negative GDP readings make the steep decline in jobs available somewhat not that big of a surprise.  The quits rate however remains high, which suggests the labor market is still doing ok.  The June JOLTS job openings reading came in at 10.7 million, a miss of the 11.0 million consensus estimate and prior reading of 11.3 million jobs.    

Oil

Crude prices are rallying on expectations the oil market will still remain tight after tomorrow’s OPEC+ meeting on output and weekly US oil inventory data.  Energy traders are growing confident that OPEC+ will resist calls for increasing their output.  Risk appetite remained healthy as China’s immediate retaliation to House Speaker Pelosi’s trip to Taiwan did not lead to any fears that a major disruption would occur for supply chains.  The supply side also is providing a boost for oil as energy traders anticipate inventories will continue to decline.  A global economic slowdown might be happening, but crude prices have come down too far given how tight the physical market remains. 

Gold

Now that gold’s nonstop flight to $1800 has been completed, traders are waiting to see if any of the big risks can keep the precious metal’s ascent intact.  Gold pared gains after Wall Street became optimistic that tensions between the two world’s largest economies would get out-of-hand. 

A strong dollar is also weighing on gold as the greenback’s pullback over the past couple weeks appears to be over.  Gold may struggle to do much of anything above the $1800 level as the king dollar appears to be back.  The US dollar got a major boost as the latest round of Fed speak supports the idea that the interest rate differential will widely remain in the dollar’s favor.  Geopolitical jitters could also draw safe-haven flows mainly into Treasuries and that will support the dollar.  Gold is trying to be a safe-haven again and this latest round of international risks to the outlook will let us learn quickly if it becomes one. 

Crypto

Bitcoin is holding up above the $23,000 level as investors await a fresh crypto catalyst.  It seems that everyone that wants to be involved in crypto is hesitant to increase their holdings right now.  Tensions over House Speaker Pelosi’s visit to Taiwan may weigh on risk appetite and that could drag cryptos lower. Bitcoin might be poised to enter a trading range that could see it trade between the $20,000 and $25,000 zone.    

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