US Open: Stocks edge higher, Standard hawkish speak from Fed’s Bowman, Oil drops on demand risks, Gold vulnerable, Crypto lower

US stocks are rising as traders digest more balloon incidents and ahead of a key inflation that might tilt the Fed rate hiking scale.  The initial move to start the week is higher, but traders might struggle to remain excessively bullish before tomorrow’s inflation data. 

Pricing pressures are expected to rise last month and we should not be surprised if the Valentine’s day inflation report is very hot as used car prices and energy costs clearly rebounded last month. Risky assets could struggle if the bond market sees more traders place bets for much more Fed tightening. If tomorrow’s report is too hot, Fed swaps could start to fully price in two quarter point rate hikes and be on the fence about a third one.

The S&P 500 is attempting to make a rally as some investors believe the bear market is over.  The Nasdaq is up 0.85% as yields soften. The 10-year Treasury is down 1.1 basis points to 3.721% 

Fed

Fed’s Bowman said, “We are still far from achieving price stability, and I expect that it will be necessary to further tighten monetary policy to bring inflation down toward our goal.” Bowman added, “While there are costs and risks to tightening monetary policy to lower inflation, I see the costs and risks of allowing inflation to persist as far greater.” 

Bowman is one of the more hawkish members, so her comments didn’t really tell us anything new. Wall Street will only care about Fed speak after tomorrow’s inflation report.

Oil

Crude prices are lower as energy traders eye many short-term macro and geopolitical risks for the crude demand outlook. It will be hard for oil to muster up a meaningful rally before a pivotal inflation report that could force the Fed to tighten policy much more aggressively. If inflation is scorching hot, we could see a make-or-break moment in the dollar as more Fed rate hikes get priced in.  The crude demand outlook is still holding onto hopes that the US economy could still have a soft landing, but a hot inflation report might trigger more recession calls.  WTI crude might struggle to rally above the $80 level if Wall Street starts to become convinced that we could see something worse than a shallow recession. 

Momentum from the Russian crude output cut appears to be over as traders fixate over the demand outlook.  Crude pared losses after BloombergNEF noted that global passenger jet fuel demand for the upcoming seven days is expected to increase 0.5% week-over-week.  Jet fuel demand is being led by the US and Europe, which means oil would probably pop if China can gain any momentum.

There is still a lot going well for the global economy, so a sustained move lower in oil prices should be unlikely.

Gold

Gold’s strong start to the year is disappearing as the bond market selloff returned in February as economists start bumping up their Fed rate hike forecasts.  The upcoming inflation report will likely show disinflation trends hit a road bump in January and that could keep both Treasury yields and the dollar supported.

How gold performs post-inflation data will likely determine whether we see prices make a move back towards $1900 or crash towards the $1800 level. Gold might remain heavy if after this report, Wall Street starts to fully price in two more quarter point rate hikes and is on the fence about a third one.

Crypto

Cryptos are weakening as every trader worries about how crippling this SEC wave will be with the cracking down on staking products and stablecoins. The news flow has been rather bearish for crypto and you can’t forget about tomorrow’s inflation report that could be hot and spell trouble for risky assets. 

Despite all the negative news on the halt of minting of some news coins and fears that the regulators are expanding their crypto crackdown, Bitcoin is still above the $20,000 level.  It might be hard for buyers to emerge until we see how Wall Street reacts with tomorrow’s inflation data.  If inflation comes in scorching hot, Bitcoin could breach the key $20,000 level and target the $18,500 region.  

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