US Close: Stocks higher on hopes the Fed is almost done, Oil higher, Gold awaits Powell, Crypto little changed

US stocks rallied as optimism grew for the end of the Fed’s rate hiking campaign. It looks like traders are now between two or three more quarter-point rate rises and that is good news for risky assets.  This is likely the most important week of the year as we will find out the short-term trajectory for both the world’s two largest economies. China’s conservative growth target of around 5% was disappointing as it implies we won’t be getting any aggressive stimulus as the economy bounces back with its COVID reopening. 

This week will likely deliver a make-or-break moment for risk appetite as we will hear Fed Chair Powell’s testimony to Congress and find out if the hot January jobs report was an aberration. Stocks probably won’t be able to have a meaningful rally until we hear from Fed Chair Powell. 

Oil

Crude prices turned positive on optimism that the Fed won’t be triggering a hard landing. Earlier, oil was heavier on disappointment after China’s National People’s Congress delivered a slightly disappointing 2023 GDP growth target of 5.0%.  A lot of energy traders were counting on a growth target closer to 6%, which explains why oil dropped a dollar overnight. 

Geopolitical risks also remain elevated as some uncertainty was thrown into mix after reports that Russia and Iran could foster a secret nuclear deal that could give Iran uranium transfers. 

The oil market was getting closer to the bottom of its recent trading range and it seems too many upside risks should help prices stay comfortably above the $80 level for now. 

Gold

Gold prices are little changed ahead of what could be a massive week with pricing in peak Fed tightening.  Fed Chair Powell’s mission should be to continue to talk the hawkish talk, while preparing Congress for job losses.  While all eyes will be on Powell, it is important to notice that globally we are close to peak tightening as the Bank of Canada will hold rates steady again and as the RBA nears the end of their rate hiking cycle. 

Gold looks rangebound until we get through this busy macro week, which could see a massive move once we get the February jobs report. After Friday, we could have growing optimism that wage pressures might be ready to start easing.  Traders will pay close attention to see if the blowout January 517,000 jobs gain gets a serious revision lower and if average hourly gains show signs of cooling. 

Gold might settle between $1835 and $1865 early, but traders should not be surprised if it has a major breakout once we are through all the noise. 

Crypto

Bitcoin continues to drift lower ahead of a big macro and potentially regulatory week.  The first couple months of the year have already unravelled most macro plays as Bitcoin has clearly outperformed.  Given the latest contagion risks, this time from Silvergate Capital, outflows (with ETP’s) have been steadily increasing. Bitcoin appears rangebound a while longer, but eventually prices should have a major move. It seems the more Wall Street positions itself for a major selloff with risky assets, markets refuse to break.  After this week, if we don’t get any surprises from Powell, we could potentially have a peak in rates firmly in place if the labor market shows signs of softening. 

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