Overnight, choppiness continued to reign in US markets; the Dow recovered from 300pts down to close up 322pts and the S&P500 recovered its 3800 level to close 1.06% higher at 3825. All happening as the US 10 year yield continued its decline to 2.89%, signaling concerns over growth and recession. Aligning with a recovery in stocks, Gold recovered from a low of $1783 to regain its $1800 mantle closing at $1813 , which finally saw gold equities recoil , GDX +2.85% and GDXJ 3.28%. XLE followed suit higher by 1.5% as Crude Oil WTI pushed to the upside of its consolidation zone ($102-110) at $108.50.
Despite the above, AUD as a Risk Off/On indicator, did not exhibit much enthusiasm , closing at 68.1c just above its low of 67.6c but a distance from the 69c handle it fell from so quickly. Likewise, Dr Copper barely bounced and languishing close to the day's low and close to 5% lower than a week ago. Silver too closed under $20 and close to 8% lower than a week ago.
On the economic front, US ISM Manufacturing PMI fell from 56.1 to 53 and under estimate of 54.9, while m-o-m construction spending contracted by -0.1% from 0.8 and an estimate of 0.4. While US celebrates Independence Day on 4 July (Mon), we have inflation gauge, job adverts, building approvals on our local front on Mon, retail sales and the all important RBA decision on Tues, US Durables and Services PMI on Wed and then the FOMC meeting minutes and US jobless claims on Thurs and US non farm payrolls on Fri. So plenty of action ahead next week.
Inflation 'Off', Recession 'On': Stocks Purged As Bonds & The Dollar Surged
BY TYLER DURDEN
SATURDAY, JUL 02, 2022 - 06:01 AM "You Are Here"... in the "strongest economy in the world" Well that was a week... All of a sudden the world stopped worrying about inflation and started fearing recession.
Economic data has been collapsing recently... Source: Bloomberg
With 'soft' survey data now leading the drop - to its weakest level since August 2019 as hope collapses... Source: Bloomberg Consensus recession odds rose... Source: Bloomberg
Modeled - macro-data-driven - recession odds are a lock now... Source: Bloomberg And US inflation breakevens have cratered - making it look like The Fed's jawboning rate-hike expectations higher has reinforced some of their credibility... Source: Bloomberg
The big question - as we saw this week with rate-hike expectations tumbling (and rate-cut expectations rising) - is if The Fed will actually stick to this plan... or fold like a cheap lawn chair... Source: Bloomberg Source: Bloomberg
The market is now pricing in a policy error and fast reversal by The Fed... Source: Bloomberg The biggest gainer from all this sentiment shifting was bonds... globally.
European bond yields crashed this week with German 2Y yields seeing the widest high to low swing in their history! Italian bonds ripped, compressing their spread (defragmentation risk) to Bunds to the lowest in 7 weeks. Source: Bloomberg “The two-way volatility seems to be feeding off poor liquidity conditions and off-side positioning today,” said Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence
Treasury yields were clubbed like a baby seal today, extending the week's drop with the belly outperforming (5Y -30bps, 30Y -15bps)... Source: Bloomberg
US Treasury Bonds are rallying from their cheapest level in 11 years relative to stocks... Source: Bloomberg
This was the 10Y yields biggest weekly drop since March 2020 - seemingly finding it hard to hold yield gains above 3.00% again... Source: Bloomberg
Despite today's late-day ramp into the green (quarter-start flows), US equity markets continued lower on the week with the Nasdaq the ugliest horse in the glue factory, down over 4%...
Did stocks start pricing in The Fed's response to the recession?
Utilities were the week's best performer as Consumer Discretionary stocks and Tech were slammed... Source: Bloomberg
The dollar ended the week higher, trading back near post-CPI highs but notably the last two days have seen overnight strength hit hard during the US session... Source: Bloomberg
Cryptos were hammered again with Bitcoin tumbling back below $20,000 (despite an overnight panic bid up near $21k)... Source: Bloomberg
Oil prices bounced today after OPEC+ reported that they missed their production goals (again) by an ever growing amount and ended the week very marginally higher...
Gold ended the week down around 1%, rebounding notably today after breaking back below $1800. Silver was slammed on the week, down over 6%...
European NatGas continues to soar higher amid Russia restrictions and the absence of US exports due to Freeport LNG's closure. In 'oil barrel equivalent' terms, US NatGas is now cheaper than WTI Crude, and EU NatGas is way more than double the cost... Source: Bloomberg
