Overnight Wall St experienced capitulation of significant proportion on recession fears upon its return from Independence Day long weekend except that you do not see it on the indices : the Dow closed down 129pts lower but was 730pts lower intraday, the S&P500 was over 2% lower at one stage to recover to close at 3831 or +0.16% , as we saw money flows ditch the material (commodities sector) sector to embrace the tech sector which helped Nasdaq closed 1.75% higher.
It was a night bloodbath for all key commodities. Crude Oil plunged from almost 12% from a high of $109 to an intraday low of $96 to close below the key $100 mark at $98. Not surprisingly oil stocks were biggest laggards- XLE -3.97%, Halliburton -8%, APA Corp -7.4%, ConocoPhillips -6.97%, Hess -6.83% , Schlumberger -6.5%, Marathon Oil -6.3%, Chevron -2.6%. Copper fell sharply to $3.44 , even Wheat was down almost 9% , Corn -6% and Soya beans -4.4%. Gold was not spared after breaching $1790, closing at $1767 from an intraday low of $1764. Gold stocks were amongst the biggest losers with GDX and GDXJ both plunging -4.26% and -5.99% respectively. Financials were also down about 2-3% intraday before a sharp rebound to close -0.34% lower.
As I had cautioned earlier, if you wait for the event to arrive, this is what you'll get, as I showed overnight, the falls in oil and oil stocks have been typically sharp and swift and this is often when you have a concentrated trade - i.e where almost everyone is trading and buying the sector and trying to get more retailers in.
A fall in US 10 year yield to 2.8% emboldened market participants to embrace the tech sector, as this could be a signal of a shift from value back to growth play...though IMO could be premature before we see what happens to tech earning numbers in the weeks ahead. As I had cautioned weeks ago, I believe we will get to days when we experience circuit breakers on Wall St , a possible catalyst could be an unexpected earnings shock from a major tech to sound out how alarming the earnings outlook could be.
Crude Crashes, Yield Curve Inverts, Bonds & The Dollar Surge
BY Zero Hedge
WEDNESDAY, JUL 06, 2022 - 06:01 AM
With July 4th hangovers, America came back to work focused on growth scares, Fed reaction-functions, and shrugging off inflation anxiety. The dollar roared higher on euro weakness (because ECB is scared to hike as aggressively as The Fed as the European economy looks like its collapsing). Oil and bond yields plunged on recession fears - and the yield curve inverted. Breakevens were battered as inflation fears fade (sparking a dovish shift in rate-hike trajectory which helped send growthy stocks soaring in anticipation of Fed rate-cuts and QE), and gold was clobbered on the soaring dollar.
The market is now pricing in less than 7 more rate-hikes (having peaked at over 12 more) and almost 4 subsequent rate-cuts in 2023...
Source: Bloomberg
With a 50% chance of a rate-cut happening in Q1 2023... Source: Bloomberg
And as that dovishness was priced in, so stocks rebounded as Europe closed. The Nasdaq screamed from down 2% to up over 1.6%, the S&P was down over 2% at its lows and rallied back into the green in the last hour. Small Caps stalled at overnight highs...
Energy stocks were the hardest hit but only Tech and Discretionary stocks made gains on the day... Source: Bloomberg
However, credit markets were not buying this bounce in stocks... Source: Bloomberg
Treasury yields were lower on the day with a massive 20bps swing from high to low on the day... Source: Bloomberg
All of which inverted 2s10s for the 3rd time this year... Source: Bloomberg
And inverted 2s5s for the first time since the 2020 COVID lockdowns... Source: Bloomberg
As inflation fears abate, Breakevens tumbled back to Oct 2021 levels... Source: Bloomberg
The Euro was routed to near parity and 20 year lows against the dollar... Source: Bloomberg
Which smashed the Dollar Index back nears its COVID Lockdown crisis safe0-haven spike highs (if biggest one day jump since June 2020)... Source: Bloomberg
Cryptos rallied today, in sync with Nasdaq's gains, erasing all the early losses... Source: Bloomberg
As the dollar ripped, gold was clubbed like a baby seal back below $1800 to its lowest level since Oct 2021...
Copper crashed to its lowest since Nov 2020, which along with Gold implies a dramatically lower 10Y Yield... Source: Bloomberg
Worst day for WTI since the world locked down in March 2020 and back below $100 for the first time since May 11...
Wholesale gasoline prices crashed alongside, back to $3.27 at their lows...
US National gas prices are down 21 straight days... Source: Bloomberg
