US Close: Investor jitters over Tightening CBs, NatGas, Oil dips, Gold steady, Bitcoin falls

US stocks were under pressure as many investors began to fear a trading life without a Fed safety net.  A wrath of central bank rate decisions this week will likely show stocks will have to move higher without the help of central bankers. Apple fell short of the $3 trillion market cap level and even meme stocks are seeing loyalty fade amongst the Reddit crowd. 

This is likely to be the last full week of trading that has 100% of market participants involved.  Volatility will remain elevated throughout all of this week’s rate decisions from the Fed, ECB, and BOE.  2022 is still expected to be a strong global growth story, but accelerated central bank hawkishness could be the one thing that helps deliver the first major pullback with US equities. 

Gas

European natural gas supply concerns had prices rallying early even as warm weather has dented the short-term demand situation.  Approval for Nord Stream might not get done until six to eight months and that should keep Europe’s brewing energy crisis as a key risk to the outlook.  Higher energy costs will be a recurring theme for Europe and that could provide some disruption to the short-term economic recovery outlook. 

The natural gas price rally in the US however was short-lived given the broad risk aversion that hit Wall Street and uncertainty over how cold this winter will be for the north.

Oil

Crude prices were unable to shake off the wave of risk aversion that hit equities on worries over the coronavirus impact to the short-term crude demand outlook and accelerated removal of accommodation by the Federal Reserve.  The return to normal for many Europeans seems like it will happen after winter for many as many corporations go back to work-from-home.  In the US, it looks like a lot of these cases may have been driven by the Thanksgiving holiday, so fears that another surge is likely to happen in January may delay any immediate optimism that this current wave is almost over. 

If the Omicron spread continues and eats away at the short-term crude demand outlook, it will likely trigger an immediate response from OPEC+ that would include the removal of the promised output increased given just a couple weeks ago.  The Saudi Oil Minister Prince Abudulaziz bin Salman reminded energy traders not to short oil prices and that the current meeting is truly not suspended.  The Saudis have shown they are masterful at controlling the energy market and whatever downward pressure emerges will likely be short-lived unless many developed nations enter full lockdown mode. 

The Saudis are making sure that crude prices can only either consolidate or head higher.

Gold

It appears gold prices will remain stuck in a trading range until investors get a better idea of how high the Fed expects interest rates to go over the next few years.  While an accelerated taper is mostly priced in, traders should be prepared for any dovish surprises. 

Gold prices have not been a good inflation hedge over the past month and that is largely due to the strong dollar that has emerged from Fed hawkishness.  Unless Fed rate hike expectations surge to three to four rate hikes in 2022, gold should start to grind higher. 

Bitcoin

Crypto traders are still unsure if the bear market move is over.  A large part of Wall Street is not doing anything until the Fed meeting and that is preventing some institutions from buying the current dip.  The fear is that if rate hike expectations become too aggressive, Wall Street may finally get that long awaited pullback that will send markets to risk-off mode and punish the most profitable trade, which has been cryptos. 

Bitcoin should remain trapped between the $42,000 and $52,000 level leading up to Wednesday’s FOMC decision and updated forecasts. 

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