US Close: Stocks fluctuate, Fed stays hawkish, dollar posts weekly gain, oil’s bad week, gold declines, cryptos surprisingly find support

US stocks are acting like they are already feasted on a 12-pound turkey.  Today’s market moves were uninspiring as we did not learn anything new.  The housing market is in a recession after existing home sales fell for a ninth straight month.  The Fed is united in sticking to the hawkish script. Fed’s Collins noted that a 75 basis-point rate increase is still on the table as there is no clear evidence that inflation is coming down. Despite this week’s steady hawkish tones from policymakers, Wall Street remains convinced that they will pivot and probably cut rates at some point around the end of next year.

This bear market rally has been stubborn, and it seems we need a clear signal that inflation is going to be sticky for the sellers to take control.

FX

The dollar didn’t do much today but is still poised for its first gain in five weeks.  The 10-year Treasury yield rose 4.8 basis points to 3.814%, which still seems far away from the peak of around 4.20% seen a couple weeks ago.

Oil

Crude demand destruction and technical selling sent oil prices sharply lower this week.  It was a bloodbath for energy bulls, as China’s COVID situation continues to head in the wrong direction and US economic activity continues to soften. Weaker demand for Saudi crude and expectations that the European ban on Russian crude won’t necessarily lead to a sharp drop of Russian oil production.

The oil market is fixated over the short-term deteriorating crude outlook and not so much the long-term supply risks. Technical selling of crude could get uglier as the shortened trading week might see some thin conditions.  Eventually oil will stabilize, but right now no one wants to try to guess the bottom.

Gold

It seems bullion traders are listening to the latest Fed speak more so than stock traders.  Gold prices are slumping after multiple Fed members continue to push back on the idea that they will soon be ready to pause their tightening cycle. The economic data is telling us a mixed picture right now, but large parts of the labor market and factory activity resilience suggests inflation could be sticky next quarter, which could support the hawks at the Fed.

The path of least resistance for gold is lower and that could continue if the FOMC minutes support the idea that next month we could have a hawkish downshift. ​ The Fed will want to keep all tightening options available and they will likely say that a half-point rate increase doesn’t mean they are at the end of their tightening cycle.

Cryptos

The FTX fallout remains the focus for cryptocurrency traders, but surprisingly both Bitcoin and Ethereum have found some support.  Perhaps the cryptoverse is realizing that FTX really didn’t account for a major piece of the global market share, or it could be that a lot of their investors are institutional ones and are fully aware of the risks that come with crypto.

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