Powell to acknowledge yield volatility, Claims not too bad, Saudis want to keep powder dry, Gold’s dizzying outlook, Bitcoin consolidates.
US stocks are awaiting Fed Chair Powell’s pivotal moment of the trading week. It is all about the bond market and Fed Chair Powell will likely acknowledge he is watching the developments with both the short and long end of the Treasury curve. Wall Street is unconvinced that the Fed can control the problems with both the elevated volatility with the long end and short end negative risks. For stocks to get their groove back and focus on the COVID vaccine driven outlook Powell needs to send a stronger dovish commitment than last week and concern over financial conditions if elevated volatility remains on the backend of the curve.
Stocks gave up earlier gains after US Commerce Secretary Raimondo stated that China needs to be held accountable on human rights issues. Relations between the world’s two largest economies have taken a backseat to vaccine and policy driven outlooks, but that won’t be the case for much longer.
Claims
This week’s jobless claims rose 745,000, a tad better than forecasts and above the upwardly revised 736,000 prior reading. The deep freeze impacted is still being unwound in this week’s reading, but still shows that claims have stabilized. Continuing claims came in as expected at 4.3 million. The number of Americans participating in all unemployment insurance programs declined by one million, but still remains elevated at 18.02 million. Democrats should still have enough ammunition to push Conservative democrats on agreeing with a final price tag around the upper range for Biden’s stimulus plan.
High-frequency measures of the US economy have been improving since mid-February except for the deep freeze that hit the south. Job growth is widely expected by most economists for tomorrow’s nonfarm payroll report. A disappointing nonfarm payroll report could mean the difference of a couple hundred billion dollars in the size of Biden’s COVID relief bill.
Oil
Energy has dominated the headlines for the past 24 hours. Yesterday, the EIA crude oil inventory report showed stockpiles surged to a record with a 21.6-million-barrel build, as refiners take longer to restart. Exxon Mobil’s investor day showed a focus on their energy transition plan with plans to see 2025 production to remain steady in 2025 with this year’s output.
Today is all about the OPEC+ meeting on future production and possibly a massive move against the dollar if Fed Chair Powell pushes back on the bond market’s skepticism that the Fed can remain ultra-accommodative. It is clear energy markets want to take prices higher and are somewhat expecting the Saudis to surprise us.
Brent crude rallied after the Saudi Prince Abdulaziz’s opening statement called for OPEC+ to keep some of its powder dry. The Saudis are posturing here and are probably pushing for no increase in output right now. Russia’s Novak is the leading voice for a substantial output increase.
The crude demand recovery warrants more output, but if the group collectively agrees upon an increase of 500,000 barrels for next month, that could provide a sell the news reaction.
Gold
Gold is slightly softer ahead of what should be another dovish commitment from Fed Chair Powell. Gold is having a terrible year, down almost 10%, and still looking very vulnerable. Gold bulls are getting dizzy as they look over a cliff of price action that could see another $100 of weakness. If the bond market continues to ignore the Fed, gold could be in for a few rough weeks. The Fed should save the day for gold bulls, but nervousness remains elevated.
Gold ETF holdings continue to plunge down for a 13th straight day. Silver is also seeing some ETF positions reduced.
Gold’s fundamentals however are improving as central banks are buying again and as jewelry demand is expected to bounce back.
Bitcoin
Bitcoin appears to be entering a consolidation phase that could last a few weeks. The rally towards $58,000 will likely remain short-term resistance for Bitcoin. Bitcoin interest continues to grow, but right now Wall Street can’t take their eyes off the bond market. Treasuries could have a massive move today and that will likely determine if we have a major unwind of risky assets that could drag Bitcoin lower.
