Mid-Market Update: Stocks fragile rebound, crude stabilizes, gold bounce, bitcoin above $20k

After stocks fell to the lowest levels since 2020, Wall Street called a timeout to the massive rout that has many traders fearing central banks worldwide will trigger severe recessions.  The latest round of Fed speak provide some optimism that the Fed is getting close to finishing up this rate-hiking cycle.  Fed’s Evan said it will be appropriate to slow the pace of rate hikes at some point, while Bullard noted that US rates have arguably moved into restrictive territory. 

Today’s stock market rebound is just as fragile as my daughter’s Magna-Tile tower that she is making next to her brother’s Hot Wheels racetrack.  Investors are scrambling for ideas on where to invest and some mega-cap tech stocks are proving to be attractive. Apple, Google, and Tesla have been outperforming over the past couple of days and that trend could continue if investors remain jittery. 

Stocks pared some gains after an impressive consumer confidence report suggested the Fed could remain aggressive a lot longer.  The end to the Fed tightening cycle is in view, the question is how restrictive will rates get.  Risk appetite might hold up if the Fed is seen delivering another 75bp hike in November, a downshift to a half-point increase in December, and a final hike of 25bp in February. 

Oil Crude prices are attempting to stabilize alongside most risky assets as the global recession fear-driven selloff is slowly getting fully priced in.  The oil market could see another drop of risk aversion quickly returns, but the current tightness should prevent a drop below the mid-$70s. 

The supply side will keep this oil market tight as OPEC+ will likely start slashing output, global stockpiles are low, and long-term support will come from the lack of investment in new wells.  Oil forecasts for much higher prices are getting slashed as no one anticipated this latest move in the dollar.  FX is the animal that no one can control and that question of how much stronger the dollar can get could keep commodities heavy over these next couple of months. 

Energy traders always pay close attention to hurricane season, but so far it seems that Hurricane Ian appears will spare the energy sector and mostly impact citrus. 

Expectations that Russia will recommend OPEC+ to reduce output by 1 million bpd helped prices extend gains.  OPEC+ will keep this oil market tight and lower output is easily justified given the weakness across Europe and Asia.  Oil’s fundamentals will eventually overpower whatever global market selloffs that emerge, which means crude should be near to forming a bottom. 

Gold

Gold is higher on the day but this is hardly a rally and more likely a temporary bounce as selling pressure takes a break.  Gold pared gains after an improving consumer confidence report supports the idea that the Fed will be able to maintain this aggressive tightening stance a lot longer.  Gold won’t bottom out until Wall Street feels they have a firm handle on how rates will go and right now it seems rates will need to quickly get above current CPI levels. 

As long as yields continue to rise, any gold rebounds look like they will be faded. The bottom for gold won’t be confirmed for a while, but right now it seems that sellers remain in charge.    

Nat Gas

Natural gas prices are higher as European authorities try to figure out how “unprecedented damage to the Nord Stream pipeline system happened.  It looks like Europe shouldn’t expect significant supplies from Russia this winter.  A Kremlin spokesman Peskov noted that Russia is “extremely concerned” and that they will conduct an investigation. Many traders believe Russia is sabotaging the pipeline, regardless this was somewhat expected by many as they lose ground with the war in Ukraine. The global energy crisis remains front and center and this remains very troubling to the short-term outlook for European assets.  

EQT CEO noted, “Hurricane Ida appears it won’t impact Natural Gas production.” His outlook for Natural gas prices to be above $7, which is well above the 20-year average.

Crypto

The global market rout is taking a break and that is good news for the cryptoverse.  Bitcoin has been showing some resilience given the violent selloffs happening across most of the major indexes.  It is rather impressive that Bitcoin is above the $20,000 level and that the recent selloff did not see a major collapse below the summer lows. Bitcoin doesn’t have a catalyst to extend much higher, but a stabilization is a welcome sign for long-term bulls.

Fed Chair Powell’s comments at the conference hosted by Bank of France did not contain any new bombshells. Powell reiterated his concern of the structural issues in the DeFi ecosystem.  Powell restated his support innovation, including crypto and encouraged congress to pass regulation for stablecoins.  Powell reminded crypto traders that it will a long time before we see a digital dollar. He said that the Fed study of central bank digital currencies will take at least a couple years, which is why it is important for Congress to provide regulation on stablecoins.  

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