Mid-Market Update: Powell’s Cautious Update, Oil pops and drops after surprise draw, Gold tanks and dollar recovers after negative rate comment, Bitcoin climbs higher

Fed Chair Powell’s economic update did little to boost confidence with the short-term outlook.  Powell’s tone was very cautious as he focused on the possible long-term economic harm and need for more fiscal aid.  Investors are expecting more stimulus from the Fed, but for now, they are in wait-and-see mode. The harsh economic reality appears to finally be capping off the tremendous stock market rebound from the March lows.  Too many uncertainties persist as to when economic activity will return and be sustained. Powell expects the unemployment rate will peak in a month or two and that economic recovery will be much slower than everyone is expecting. 

Powell delivered one of his most downbeat remarks and burst the risk appetite balloon for many investors.  Powell’s comment that negative interest rates are off the table tentatively removed the last big bazooka of stimulus.  The Fed Chair’s cautious tone and comments of long-term scarring of the economy, wave of bankruptcies, and that the country is still not through the worst of economic shock of coronavirus pandemic, will keep investors positioned heavily in technology and pharmaceutical stocks. 

Oil

Oil prices popped and dropped after the weekly EIA crude oil inventory report showed inventories declined for the first time since January.  Crude prices rose sharply following the surprise draw but gave back the gains quickly after it became apparent crude input at refineries is still very weak, falling to lowest levels since 2008.  The supply side of the EIA report was bullish, but the demand side was not as refinery utilization sank even further from already low numbers.  The economic recovery and pickup for crude demand will take a lot longer to make a dent with record high inventories. 

Crude prices appear poised to be stuck in a range until the oil market is balanced.  US production will need to decline faster for prices to resume their rebound.  Overall the report was mostly bullish, but it seems for prices to rise higher utilization rates are required and production cut efforts need to intensify. 

Gold

Gold apparently hopped on the seesaw to watch Powell’s economic update.  Gold prices initially were sharply higher on Powell’s grim assessment to the outlook of the economy and commitment to use its tools to the fullest until the recovery takes form.  Gold quickly tumbled after Powell stated negative rates isn’t something that we’re looking at.  Gold managed to recover most of the decline after traders pushed back their bets on negative rates till later next year.  

Gold’s bullish outlook was confirmed by Powell’s bleak outlook for the US economy and markets expectation that negative rates will come to the US at some point next year.  Negative rates are debatable, but continued stimulus by the Fed was pretty much promised by Powell, and that should help give gold further momentum to rise even higher.   

FX

The dollar recovered earlier losses following Fed Chair Powell’s assessment of the economy.  It is almost as if markets were expecting the Fed to announce something new today.  Today’s cautious tone by Powell has many traders positioning themselves for a flight-to-safety.  The dollar will eventually pay for all the Fed’s stimulus measures, but for now too many risks the global outlook will still keep the dollar supported. 

Bitcoin

Bitcoin’s post-halving slump was short-lived and seems to be over.  Institutional interest is the main driver for higher Bitcoin prices.  Following last week’s endorsement from Paul Tudor Jones, yesterday New York Digital Investment Group announced they raised $140 million from accredited investors a week before the halving event.  Bitcoin is starting to have a nice macro and technical backdrop.  It seems the run back towards $10,000 might be greeted with further bullish interest.  Major resistance lies around last summer’s high of $13,851. 

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