US Close – Stocks pare losses on reports ECB working on a tool to tackle yields, Canadian jobs, Oil rebounds, Gold higher, Bitcoin struggles

US stocks pared losses after reports that the ECB is working a crisis tool that could help tackle what seems to be a likely surging bond yield problem for the southern periphery.  The ECB has the hardest job of all the other major central banks and this potential tool shows they are trying to get ahead of what will be an unbalanced economic recovery once inflation eases.  Wall Street is looking at surging Treasury yields and swapping out tech stocks for more defensive plays such as energy, financials, healthcare, and materials. 

Canada

The Canadian economy added 72,500 jobs in March, slightly below economists’ expectations but still strong enough to allow the Bank of Canada to raise rates by a half-point at next week’s policy meeting.  The unemployment rate dropped to 5.3%, the lowest levels since the mid-1970s.  Full-time employment hiring was the driver behind today’s decent employment report.  The Canadian dollar was little changed following the modest employment report and rebound in oil prices.  If the US dollar wasn’t having a strong day as the bond market selloff resumes, the loonie would have performed better today.   

Oil

Crude prices have stabilized as the announcement of the coordinated stockpile release and China’s demand destruction driven selloff has run its course. Rising rig counts however are being met with labor shortages and that will delay some crude production increases in the US. The oil market is still tight, but if China’s lockdowns have no end in sight, crude prices could still weaken by another 3-5%. 

WTI crude should find decent support from the mid-$90s, but if the dollar further extends its gains, that could keep most commodities vulnerable. Supply shortage concerns appear to be easing, but we are still early in the peak summer driving/travel season. 

Gold

Gold prices are rallying as inflation gets uglier and that is leading to fears that the Fed will have to be even more aggressive with the tightening of monetary policy.  Too many risks to the outlook are emerging and some investors are loading up on safe-havens. Geopolitical risks remain elevated and expectations are shifting that the war in Ukraine could last a while. The EU adopted a fifth round of sanctions against Russia and it seems that a wide energy embargo could eventually be on the table.

Inflation is getting very ugly and the Fed might have to take much higher than most traders are expecting and that will undoubtedly drive economic growth concerns later in the year. Gold should start to attract some long-term bets but will struggle if Treasury yields continue to soar.  The $1970 level should provide short-term resistance for bullion. 

Bitcoin

Bitcoin is down again as institutional investors grow nervous over the upcoming pace of tightening by the Fed.  Bitcoin 2022 didn’t really have any game changing announcements that will drive the next round of major investments. Instead the focus was on Peter Thiel’s attacks on Warren Buffett. Despite all of Peter Thiel’s rage, Bitcoin remains trapped like a rat in a cage. Bitcoin’s cage is the $38,000 to $48,000 range and that could hold over the next week or two. 

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