US Open: Stocks still jittery on banking woes, Inflation expectation fall to lowest levels in nearly 2 years, Crude struggles, Gold shines, Bitcoin eyes $30k

US stocks are weakening on fears that this week’s banking turmoil will lead to tighter lending standards that will cripple small businesses and eventually send this economy into a recession.

The Fed’s rate hiking cycle was already feeling restrictive, so now that we have rising risks of more bank bailouts and even tighter credit standards, the growth outlook for the economy is rather bleak. Next week will be huge as markets are unsure if the Fed will continue to tighten or given this week’s banking turmoil decide to hold. ​

Wall Street wants to know if the risk of a Fed policy mistake is growing and next week’s rate hiking decision and forecasts should signal if that risk is growing.

US Data

The University of Michigan Sentiment report did not deliver any surprises, with the exception of a sharper drop for the 12-month inflation outlook.  Sentiment fell from 67.0 to 63.4 in early March, while current conditions tumbled from 70.7 to 66.4.  Inflation expectations for the next 12 months fell to the lowest level since 2021. The consumer is getting nervous here. ​ ​ ​

Oil

Crude prices remain heavy as banking turmoil won’t be going away anytime soon and over fears that the Fed’s rate hiking cycle is starting to take down the economy. It seems that the oil bump that we got earlier in the month from China’s reopening was premature. Clearly China’s recovery still needs more support as the PBOC cut the RRR for all banks in a move to stimulate the economy.

Special Presidential Coordinator for Global Infrastructure and Energy Security Hochstein is determined to assess what happens with oil markets before rushing to fill up the strategic petroleum reserve (SPR).  Energy traders were waiting for some announcements about refilling the SPR once WTI broke below the $70 level, but that is not happening because a severe recession could send oil closer to the $60 level.

Energy traders are not sure what could be the catalyst to send oil prices higher given all the doom and gloom happening with short-term crude demand outlooks.  The Fed’s forecasts will closely be watched as that will signal if we are at a greater risk of a policy mistake.  For now oil will remain heavy as traders try to figure out what type of recession policymakers will trigger in the US.

Gold

The return of bank angst is sending gold prices sharply higher.  Many gold investors are looking at the short-term macro risks and it seems that a wide range of expectations should mostly be positive for bullion.  If the Fed is one and done with rate hikes, that should be bullish for gold as it puts a short-term cap on the dollar.  If inflation proves to be stickier and the Fed has to resume tightening that would deliver a major blow to the economy and trigger many safe-haven flows for gold.

Gold may hover around the $1950 leading up to the Fed, but after next week’s FOMC decision and updated forecasts, Wall Street might have a better handle of how bad of a recession this rate hiking cycle will trigger.  Safe-haven flows into gold should be steady as the economy enters a recession.

Bitcoin

Bitcoin is rallying on optimism that regulators are open to a big bank taking over the crypto parts of Signature Bank.  Cointelegraph reported that an FDIC spokesperson denied suggestions that any potential buyer of Signature Bank must agree to give up all cryptocurrency business as part of the sale. Signature Bank was a key crypto bank in the US and the survival of that business is key for long-term growth prospects for a good part of the cryptoverse.

Bitcoin is trying to breakout here and make a move to the $30,000 level.  A potentially failed triple-top pattern is helping drive the growing bullish macro argument for Bitcoin.  ​

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