US Close: Powell ready for super sized hikes, Inversion focus as bonds selloff, Boeing 737 plane crashed in Southern China, Oil rises as calls for EU to ban Russian energy grow, Gold sideways as yields surge, Bitcoin holds $41k

US stocks had an uninspiring start to the trading week after Fed Chair Powell delivered another round of hawkish comments and as commodity prices surged on growing expectations the EU could consider an oil embargo on Russia this week.  The harsh reality of faster rate rises is setting in for some traders and that could eventually lead to a taper tantrum which might happen alongside stagflation.  Monetary policy is still accommodative for now, but that could quickly change if the Fed delivers a couple supersized rate hikes by the summer. 

Powell

Fed Chair Powell is not backing away from his hawkish pivot.  Powell said inflation is too high and that the Fed may well conclude that they need to move more quickly.  The risks of 50 basis point rate hikes should put a damper on some stock market dip buyers who may have to turn defensive.  Powell refrained from providing any additional guidance on the balance sheet runoff. 

Boeing

The China Eastern Boeing 737 crash is terrible for Chinese relations which is critical for the long-term outlook. The Boeing 737-800 NG model was the plane model that crashed carrying 132 people.  This was considered to be a very safe plane, so you might see some resistance from other airlines to halt usage of this model. 

If the 737 Max gets grounded by more airlines, that is terrible news for Boeing. Boeing’s stock was starting to see some analysts turn long-term bullish, so you might see limited downside given how beat up the stock has been since 2000. 

Oil

Crude prices are rallying as expectations for an EU ban on Russian energy supplies grow and after the Houthi rebels launched multiple attacks at Saudi Aramco sites. Geopolitical risks remain elevated and that has made this a one-way trade for oil prices.  Trading oil will remain a volatile trade, but it seems energy traders are growing more confident that supply shortages are just around the corner. 

China’s decision to avoid broad lockdowns is also helping oil prices as the short-term crude demand hit should be temporary. Shanghai is seeing record cases as testing expansion is showing daily caseload doubling in two days.  This wave will likely see stricter measures across some regions, but Beijing is trying to hold off as many lockdowns to preserve as much economic activity as they can. 

The oil rollercoaster ride remains a geopolitical trade and right now it seems the risks are growing and that could push crude prices higher. 

Gold

Gold prices held onto gains even as Fed Chair Powell signaled they were ready to raise rates faster if needed.  Too many geopolitical risks and growth concerns should provide some underlying support for gold going forward.  Gold prices are still above the $1900 as the Treasury yields soar higher.  The 10-year Treasury yield rose 15.1 basis points to 2.30%, which shows  you that Wall Street is expecting the Fed to tighten beyond what the dot plots are showing.  Gold is entering that stage where surging Treasury yields would come alongside with growth concerns, which means bullion should still attract flows even if the bond market selloff intensifies. 

Bitcoin

Bitcoin is holding up nicely given the surge in Treasury yields after Fed Chair Powell told markets they could more quickly with interest rate increases.  Many crypto traders are nervous about how much money is on the exchanges, which could signal some investors are about to head to the sidelines. Bitcoin might struggle to push much higher from here, which means prices could be in for a rude awakening if the $40,000 level breaks.   

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