NFP React: What Recession!, Abe’s legacy, Twitter, GameStop, Oil rises post NFP, Gold remains vulnerable, Bitcoin likes July

The economy is clearly not slowing as fast as many were thinking as the labor market remains robust. The US economy added 372,000 jobs in June, much better expectations and paving the way for the Fed to focus solely on inflation at the end of month policy meeting.  The unemployment rate remained steady at 3.6% and wages gains continued.

This strong jobs report means that the Fed should still be good to go with a 75 basis-point July rate hike.  US stocks initially came under pressure as markets price in another aggressive Fed rate hike. Wall Street should get used to a choppy stock market for the rest of the summer as the Fed tries to navigate a soft landing.  Stocks settled slightly higher as a decent NFP report didn’t really shift expectations too much over Fed tightening.  Traders couldn’t remain that bearish over news that the consumer is better-off-than what many were fearing.

The front end of the curve is telling us the Fed has the greenlight to relentlessly fight inflation, while the long end is saying a recession is brewing. A lot of the economic indicators are showing clearer signs of weakening, so expectations should still remain high that the labor market will probably be slowing down in the fall.

The focus shifts quickly to next week’s CPI report and even mildly hot inflation numbers will allow the Fed to tighten again by 75 basis-points.  If inflation delivers another upside surprise, the September meeting could see expectations fully priced in a half-point rate increase but that could easily go up to 75 basis-points.

Abe

The assassination of Shinzo Abe brought stunned the world.  Abe was Japan’s longest serving prime minister. He brought political stability to Japan and helped usher in some prosperous times, with the best period being between 2015 and 2017.  He is known for Abenomics, which was an aggressive economic growth strategy.  Abe was respected around the world and helped bring Japan back to the front of the global stage.

Abe was killed after being shot while giving a speech at a political event.  Japan’s PM Kishida says we must protect elections as the foundation of democracy.  Japan is expected to hold upper house election this Sunday. ​

Twitter

Twitter shares are declining over fears Elon Musk’s acquisition is falling apart.  The Washington Post reported that the deal is in ‘peril’ as Musk’s camp can’t confirm Twitter’s claim about spam accounts. The deal was already feared to be falling apart but the contract Musk signed will make it hard for him to break away from it.  The $44 billion dollar deal is in jeopardy but there is still a good chance the deal will get done, but possibly at different terms.

GameStop

GameStop is declining after firing the CFO and announcing layoffs. Investors are quickly forgetting the buzz from the 4-for-1 stock split. How many turnaround plans will GameStop go through before people realize it is not a leading company in the blockchain world. Meme stock mania is slowly dying here and GameStop will struggle to maintain long-term investors.

Oil

Crude prices edged higher after the June labor market report shows the economy is strong. Economic growth fears may have been overdone as the oil market looks poised to remain tight for the foreseeable future.  After testing the mid-$90s, the selling pressure for WTI crude has been completely exhausted.  Oil prices will likely comfortably trade above the $100 a barrel level as the risk of interruptions to supplies remains elevated.  Kazakh and Russian oil shortages could keep oil prices heading higher into next week.

Gold

Gold prices are turning positive as financial markets appear to be close to pricing in Fed tightening.  Gold’s terrible week was driven by recession fears and as the dollar surged following the surge with the short-end of the Treasury curve. ​ Technical selling of gold remained extreme throughout the week and the Friday rebound might be short-lived. ​ Gold could still be vulnerable to a decline towards the $1650 to $1675 zone before buyers are willing to return.

Crypto

It has been a good July for Bitcoin. The end of the first half of the year saw peak pessimism for the entire crypto market and that kept many traders on the sidelines, many who were eyeing another major collapse at around 50% or more.  What has changed from just a few weeks ago is that the Wall Street is getting close to feeling they have fully priced in Fed tightening. A robust nonfarm payroll report has pretty much confirmed a 75 basis-point rate increase later this month.  ​

After it became clear that the short-term selling momentum ran out of steam, Bitcoin has been stabilizing even as risk aversion remains the dominant mindset on Wall Street.  ​

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