Mid-Market Update: Stocks drop on tightening and growth fears, Fed speak, Treasury uses special measures, US Data, Oil higher, Gold shines, Bitcoin finds support ahead of $20k

US stocks are declining after another labor market statistic shows that despite all the big-tech post-pandemic layoffs, the jobs market remains hot. The labor market needs to break to allow the Fed to comfortably keep rates on hold. The risk of more rate hikes down the road will remain on the table if we don’t see the unemployment make a serious move higher above 4%. 

Fed’s Collins comments on rates did not move markets as she is standing with the majority.  Collins noted, “policy rate needs to likely rise just above 5% and need to hold rates there for some time. 

Treasury Secretary Yellen confirmed that the Treasury has begun using ‘special measures’ on debt ceiling and debt issuance suspension period will last through Monday, June 5^th.  The US avoided default and the pressure will start to grow on Congress to raise the debt ceiling. 

US Data

This morning contained another round of economic data that told two stories.  Initial jobless claims data confirms that the labor market remains strong, while the Philly Fed tries to stabilize and the housing market stays stuck in a recession.

First-time claims for weekly unemployment benefits dropped by 15,000 to 190,000, the lowest levels since September.  The holiday period adds to volatility for jobless claims and so did some extreme weather.  There are too many signs that the economy is softening, but businesses are hesitant to lay off talent as they remember how hard it was to onboard.       

The Philly Fed survey improved but still remains at depressed levels.  The headline index improved from -13.7 to -8.9, slightly better than the consensus estimate of -11.0.  The survey showed that firms expect smaller cost increases this year.  Future new orders and shipments remain positive but still at low levels. 

The housing market remains stuck in a recession, but optimism is growing that the bottom is getting close.  Housing starts decline less than expected, while permits didn’t post a stronger rebound. 

Oil

Crude prices are rallying as China’s robust demand will likely lead to rising inventories and increased activity for refiners.  The short-term crude demand outlook is looking strong as the US labor market remains strong and on China’s reopening momentum. US recession fears are still here and they won’t be going away anytime soon, so WTI crude might hover around the $80 to $85 region. 

Oil pared some of its gains after the EIA crude oil report showed demand bounced, shrugging off the expected rise with inventories. A stockpile build of 8.4 million barrels, was more than the early forecast of a draw of 1.8 million, but slightly higher than yesterday’s API’s build of 7.6 million barrels.

Gold

Gold prices are rallying as investors seek safety as recession and default risks won’t be going away anytime soon.  Mixed US data continues to support the idea that the Fed might need to do more tightening given how strong the labor market remains, but the rest of the economy is weakening.  Gold will look even more attractive if the US is viewed as likely having a recession in the second half of the year, which could mean earnings will contract far worse than markets are pricing.

If gold doesn’t make a quick run towards the $1935 level, it could consolidate around the $1900 region. 

Bitcoin

Cryptos took a hit over the past 24 hours on news that Genesis Global Capital is getting closer to a bankruptcy filing.  Genesis has been trying to find more capital or make a deal with creditors. Genesis has been in trouble since the end of last year and most of the negative news should be priced in. 

Bitcoin is higher today, mostly finding support ahead of the $20,000 level. The crypto space is getting cleaned up and as long as we don’t see a major reputable exchange go under, traders may mostly shrug off news of the demise of smaller crypto companies. 

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