Stocks lower as Hawkish Powell doubles down on tightening threat

• Dollar drops after 3-day rally
• Powell remains hawkish; bringing down inflation has a long way to go
• Fed swaps price in a 69.2% chance of a hike at the July 26th FOMC meeting

US stocks declined as Fed Chair Powell’s testimony to the House affirmed the Fed’s threat of higher rates to combat inflation.  Wall Street should not have been surprised by Fed Chair Powell’s commitment to vanquish inflation, but swap futures are still only pricing in one more rate hike.  Powell reiterated that the economy is strong but that inflation remains elevated. 

The Fed is clearly not nearing the end of its tightening cycle and if other central banks seem poised to deliver more than a couple rate hikes, that might make it easier for the Fed to remain aggressive with tightening.  Powell said lowering inflation has a long way to go and that could very well mean that they won’t stop until the fall. 

Oil

WTI crude prices are finally stabilizing above the $70 level as energy traders anticipate the start of summer should keep demand steady over the next few months. Oil got a boost from a weaker dollar and optimism that the economy will remain strong throughout the summer. Oil was getting near the bottom of its recent trading range and it could continue rebounding if the headlines for China remain upbeat. 

The oil market is going to remain tight thanks to OPEC, so that should make trading a little easier for energy traders.  Most energy analysts envision $80 oil at some point this year, so any bullish headline could get us there.  Hurricane season is also here, and we might be getting our first taste of it with Tropical Storm Bret.

Gold

Gold remains under pressure as Fed Chair Powell stuck to the hawkish script.  It is not just the Fed, but also the BOE and the risk of many more rate hikes that are making non-interest bearing gold less attractive.  If the BOE ends up needing to do supersized hikes, that could suggest more aggressive tightening could be seen with all the other major central banks. 

Gold tentatively breached the $1930 region and remains vulnerable to a plunge towards $1900 level. If the BOE decision ends up being more hawkish than expected, momentum gold selling might get ugly.    

Bitcoin

The cryptoverse is alive.  Bitcoin is surging after a few financial giants have made commitments to crypto. It started with BlackRock’s Bitcoin ETF filing and now others are following.  Who needs regulatory clarity if you see BlackRock making a move. Bitcoin rose 6.8% to above the $30,000 level.  The SEC has been playing hardball with a Bitcoin ETF and crypto watchers are speculating that BlackRock knows something. 

Bitcoin momentum may last a little longer, but it will need to hear good news from the SEC to see a sustained rally target in the mid-$30,000 region.  

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