Mid-Market Update: Stocks rally on easing inflation expectations and Bullard’s optimism, Oil rallies, Gold remains a choppy trade, Bitcoin edges higher

US stocks are rallying after a key survey showed inflation expectations are easing and following Fed Bullard’s optimistic comments about the economy. Hopes that inflation is peaking and that the economy is still on solid footing has some investors confidently buying up heavily discounted stocks.  It seems Wall Street is starting to believe that even if the economy has a recession, it will be a short one.

This could still be a bear market rally, but that might change if we get some less pessimistic outlooks from some major retailers next week.  Earnings updates from Nike, H&M, Walgreens Boots Alliance, and Bed Bath & Beyond could drive the next major move.    

Fed

One of the more hawkish Fed members, James Bullard noted that fears of a US recession are overblown and that consumers are flush with cash. With a strong labor market and with household balance sheets still remaining favorable, Bullard’s optimism is justified if inflation did manage to peak.  The best-case scenario for equities is that inflation continues to show signs of peaking and the consumer remains strong. 

US Data

The University of Michigan’s Surveys of Consumers showed sentiment fell to a record low, while inflation expectations surprisingly eased. A noticeable drop with inflation expectations is welcomed news for risky assets.  The 1-year inflation outlook improved from 5.4% to 5.3%, while the 5-10-year outlook dropped from 3.3% to 3.1%.

Oil

Crude demand destruction is happening as the US recession angst darken the global growth outlook.  The oil market won’t be tight much longer as factory activity is quickly softening, business confidence is clearly in deterioration mode, and as the consumer is spending less. 

Oil was ripe for a rebound after falling 18% in less than two weeks as the short-term demand outlook remains robust.  Inflation is public enemy number 1, but the recent slide with oil prices was overdone. The oil market is too tight as Asia’s refining margins soar to record levels. 

Gold

Gold prices are steadying as investors expectations with inflation are reined in. Global central banks are delivering aggressive policy tightening and that has helped bring down inflation expectations. Gold remains trapped in a range as traders await to see if the latest inflation reports will force the Fed into committing to more massive rate hikes beyond the July policy meeting.

Gold should see strong support at the $1800 level as global recession fears should support strong buying of Treasuries at the long-end of the curve.  Any bullion rallies may find resistance at the $1840 area. 

Crypto

Bitcoin and many of the other top coins are ready to breakout after key options expiration. Bitcoin is still not matching the gains seen with equities as sentiment remains depressed. The selling pressure might be easing, but strong buyers are not yet emerging. 

Bitcoin seems poised to consolidate here, with long-term bulls welcoming a consolidation above the $20,000 level. 

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