US Close – Japan Intervenes, Stocks rally on Fed pivot hopes, Oil edges higher, Gold pops after WSJ article on Fed, Crypto steady at $19k

Wall Street smashed the buy button after reports that the Fed would soon be ready to debate on how to slow the pace of tightening after the November FOMC meeting. A major reversal with Treasury yields occurred after the Wall Street Journal article signaled that after the Fed delivered one last 75 basis-point rate hike, it will consider smaller increases. The 10-year Treasury yield looked like it had a clear path towards 4.40%, but that quickly changed and now it seems like the October bond market selloff is ready for a break. Policymakers still need to look at the data and right now the risks of overtightening should still remain on the table.

The S&P 500 has stabilized this week on strong earnings and hopes that a Fed downshift is coming and now technical buying could return since the 3,600 level has held up.

Intervention

Japan’s intervention in the FX market happened during the perfect time as the dollar was in retreat following reports the Fed is getting close to a downshift in tightening. The Nikkei broke the news about Japan’s efforts to support the yen after it fell to a fresh 32-year low. Japan’s top currency official refused to comment, but given the spike in yen futures contracts, it was most likely an intervention.

Bullish dollar-yen bets quickly ran to the sidelines after reports of the massive intervention. Despite the major reversal, further yen strength will be limited until Wall Street is confident that the peak in Treasury yields is in place.

Oil

Crude prices are finishing the week on a high note as risk appetite returns on hopes the Fed won’t be sending the economy into a severe recession. The oil market is still looking tight and that should support crude prices staying above the $80 level. As the war in Ukraine persists, it looks like we might see escalating sanctions on not just Russia but also Iran. The risks of supply disruptions remain elevated and that should keep prices trending higher as long China’s outlook doesn’t take a turn for the worse.

Gold

Gold could slowly be getting its groove back as expectations grow that the Fed is getting close to a downshift in tightening. According to the Wall Street Journal, this next 75 basis-point hike could be the last major one. The peak if Fed tightening appears to be right around the corner and that is good news for bullion.

Gold’s line in the sand was the $1620 level and it seems prices are getting safely further away. Gold’s outlook could turn bullish if Treasury yields become anchored.

Crypto Bitcoin looked like it was in danger earlier in New York, but a massive bond market reversal prevented a massive wave of technical selling. After the 10-year Treasury yield rallied to the highest level since 2007, Bitcoin was in trouble. If risk appetite can stay healthy, Bitcoin should continue to consolidate above the $19,000 level.

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