US Open: Stocks drop as yields rise, IMF warning, Chip stocks crushed on curbs, King Dollar advance stalls, Crude lower on demand fears, Gold still vulnerable, Bitcoin holds onto $19k for now, Google partners with Coinbase

Tech stocks are hovering near 2-year lows on bond market chaos and expectations for a gloomy earnings season. ​ Investors are nervous after this week’s inflation data, Fed tightening calls will demand for more aggressive hikes beyond November and that we could be seeing another major round of selling. ​ The IMF slashed their global growth outlook and warned that the ‘worst is yet to come’. The IMF didn’t say anything we didn’t know but they did remind us of all the global economic risks, which can’t be good for anyone on the fence about buying into this current wave of weakness. ​

It seems a lot of investors are just waiting to see if US stocks drop another 5 or 10% before placing some long-term bets. ​ The macro backdrop keeps getting uglier given the latest escalation with the war in Ukraine and growing fears that stagflation might force central bankers globally remain aggressive with tightening and that will trigger severe recessions.

Tech

Semiconductor stocks are getting hit hard after a new round of curbs on high-end Chinese tech. ​ Taiwan Semiconductor Manufacturing Co, the world’s largest chipmaker, posted a record decline following the sweeping regulation. Everyone loses with these new restrictions as semiconductor space could see major hurdles to develop future technologies. ​ The Biden administration is remaining aggressive against China and this latest action will slow them from making advanced semiconductors. ​

FX and Wheat

Safe-haven flows continue to power the dollar following a coordinated Russian missile attack on civilian targets. ​ Some military analysts don’t believe Russia has a huge amount of stocks and can’t replicate yesterday’s attack. The Russian attack was in response to the bombing of the bridge that connected Russia to Crimea. ​ Wheat prices rallied on fears that future transport of goods could be in jeopardy given the latest escalation with the war in Ukraine. ​ The G7 is gathering for an emergency meeting and may include a finalization with the cap on Russian crude and add further sanctions against Russia. ​

The dollar’s advance has run out of steam, but that doesn’t mean it is over. ​ The dollar is slightly lower against both the euro and cable, while stronger against the yuan.

The BOE widened their gilt purchase operation to include index-linked gilts. ​ The BOE also reiterated that they expect to move forward with the plan to end these operations and cease all gilt purchases on Friday. ​ The pressure is growing for the BOE intervention to be extended until the end of the month and for additional measures to be put in place to contain market volatility. ​ ​

Oil

Oil prices are lower as the crude demand outlook got bombarded with bearish drivers; the IMF’s outlook is fearful of a global recession next year, European (Czech and Hungary) inflation remains hot and raises the risk central banks will trigger severe recessions, China maintains zero COVID strategy as cases rise, and as Wall Street remains very bearish risky assets over the short-term.

Crude’s weakness occurs as the risk of significant supply disruptions remain elevated. WTI crude will likely use the $90 level as the centered line for the demand and supply side to play tug-of-war. Despite all the short-term growth fears, oil’s downside should be limited. ​ It would take the worst-case scenario for global stagflation for crude prices to return to the September lows. ​ ​ ​ ​

Gold

Gold prices remain vulnerable to further selling pressure as no one wants to abandon the strong dollar trade given the current macro backdrop. ​ Bullion will struggle here as the dollar will easily be supported given the war in Ukraine is intensifying and the financial plumbing abroad is a big risk. If the bond market selloff continues, gold prices could easily fall back towards the $1640 level. A policy mistake by the BOE by the end of the week is what might be needed to break below bullion’s September lows. ​ ​

Crypto

Cryptos remain stuck in a trading range as basically everyone on Wall Street awaits one last major decline with US stocks. ​ Bitcoin remains anchored but the long-term fundamentals remain supportive for a major rally once stagflation risks have eased.

Google’s partnership with Coinbase shows that crypto adoption continues to head in the right direction. ​ Google will use Coinbase for crypto payments on cloud services. The search giant will also use Coinbase Prime for institutional services that include securing custody and reporting. ​

Bitcoin is holding onto the $19,000 level but if the selloff on Wall Street intensifies, bearish momentum could target just ahead of the $18,150 support level. ​

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