U.S. stocks rose after another impressive ISM services index suggested parts of the economy remained healthy and U.S. Treasuries rallied after the Federal Reserve’s monetary policy report said “high inflation is not entrenched.” Wall Street has had a lot of Fed speech to digest over the past week, but it’s clear that despite all these signs of a resilient economy, traders think we’re very close to a peak.
the fed
Yesterday’s Fed Bostic indicated that he was open to further rate hikes ahead of new data, but traders only listened to his comments that he was aiming for a pause in rate hikes in the summer. The Fed’s Waller remains data-dependent and said they may need to tighten policy further if the data gets too hot. The numbers are clearly close to being hot, but that doesn’t suggest Wall Street is back in risk-on mode.
Oil
Crude prices surged after the United Arab Emirates dismissed earlier speculation that they were considering leaving OPEC and an ISM service report backed the view that the U.S. economy remains strong. A weaker dollar also boosted oil prices as U.S. Treasuries rose.
Oil markets are starting to get nervous again as the Chinese economy rebounds and the U.S. services sector remains resilient. The rig count also fell by eight to 592, according to Baker Hughes.
Oil prices look likely to try to find a home above $80 a barrel, which could happen next week if traders are impressed with China’s growth strategy after the congress.
the gold
Gold prices are rising as investors end a sell-off in the bond market and excessive optimism that China’s economy is about to take off. The peak in interest rates is getting closer, but I’m a little surprised that the 2-year US Treasury yield is not near 5.00%. Next week will be a big one for the bond market as we will hear Federal Reserve Chairman Jerome Powell’s semi-annual testimony to Congress and get the latest jobs report.
It could be make or break for gold next week. If Fed Chair Jerome Powell sticks to his hawkish stance and we don’t see a sharp cut in January and strong job growth in February, gold’s gains this week could evaporate. Gold could soar if Powell is optimistic that a peak is in place.
cryptocurrency
Bitcoin is falling after major banking providers in the crypto industry fought for survival. The Silvergate struggle has been going on throughout the last year, but liquidity risks are now worrying many cryptocurrency traders. Failure to file their annual reports on time has sparked fears they may not survive. Several major cryptocurrency companies are ditching Silvergate, raising some contagion concerns.
Bitcoin continues to trade within a trading range of $21,500 to $25,000.
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With over 20 years of trading experience, Ed Moya is a Senior Market Analyst at OANDA, providing up-to-date intermarket analysis, coverage of geopolitical events, central bank policy and market reactions to corporate news. His expertise spans a wide range of asset classes, including foreign exchange, commodities, fixed income, equities and cryptocurrencies. During his career, Ed has worked with some of Wall Street’s leading forex brokerage firms, research teams and news departments, including Global Forex Trading, FX Solutions and Trading Advantage. Most recently, he worked at TradeTheNews.com, providing market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo, and more. Finance Live, Fox Business and Sky TV. His opinions are trusted by the world’s most prominent global news agencies, including Reuters, Bloomberg, and the Associated Press, and are regularly quoted in major publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.