US stocks are edging lower following mixed Chinese economic data, concerns that Taiwan and Singapore success in fighting COVID is in jeopardy, and after the Empire State manufacturing survey solidified the inflationary theme that is running wild on Wall Street. Earlier, a key truce was reached between the US and EU on steel and aluminum tariffs.
Even after a trading week which saw some of the high-flying commodities (copper and corn) take a break, Wall Street still remains focused on inflation.
Empire
Business activity in Empire State was strong once again with a 24.3 print, better-than-expected, but down from the prior 26.3 reading. The survey noted further price increases and strong employment growth are expected. Prices paid rose to a record high, while the forward-looking indicator came down modestly from 71.2 to 67.1. The trend from all these Fed regional surveys continue to be strong improvements with rapidly growing pricing pressures.
Mega media deal
A mega-media deal may have created a giant that could go toe-to-toe with Disney+ and Netflix. AT&T will spin off its media business and merge with Discovery. Shares of both AT&T and Discovery were higher on the $43 billion deal. The new combined media giant will have $20 billion in free cash flow to spend on content, which is $3 billion more than what Netflix committed to spend this year.
Now we have three titans of media, which should mean spending wars for content will likely crush the smaller streaming services. Costs will eventually go up and the consumer might actually miss the days of cable TV and adding a couple premium channels.
China
China’s economic outlook remains very strong, but financial markets will probably have to trim some of their end of year forecasts given the sustained price increases across commodities and some of the weakness that is already emerging in the data. Economic activity in China is cooling as factory costs surge.
Industrial production peaked in the first quarter as the April readings showed industrial output rose 9.8% from a year earlier, down from the 14.1% prior reading and 10.0% consensus estimate.
Retail sales rose 17.7% in April from a year ago, a big miss from the 25% forecast. Consumer spending is not as robust as analysts expected and that should prevent investors from becoming too aggressive with their yuan bets.
FX
Expectations still firmly remain in place for a strong synchronized economic boom in the second half of the year which should have safe-haven currencies under pressure. The key observation for currency markets is that most of the advance of the economies (US, UK, Australia, New Zealand, and Germany) are doing well, while emerging markets continue to struggle.
This week the focus will fall heavily on Fed speak which if it continues to support the notion that policymakers are not wanting to talk about tapering anytime soon, the dollar could remain vulnerable against other advanced economy currencies that are well into their respective reopening of their economy.
Oil
Crude prices are softer as the demand outlook starts to take a hit after Taiwan and Singapore announced anti-virus curbs. The more infectious Indian variant is wreaking havoc across Asia as governments announce restrictive measures to try to prevent outbreaks.
The news is not all negative on the demand front as the US saw air travel jump on Sunday to 1.8 million people, the highest total since March 2020. United Airlines also announced they will add 400 daily flights to July for European destinations.
With the commodity rally taking a break, WTI crude could continue to consolidate here until Asia gets COVID-19 under control. Short-term pressure could target the $62.50 level, while the ceiling remains March high which was just under the $68.00 level.
Gold
Gold prices are rising and up against massive resistance. The relative heaviness with Treasury yields has done wonders for bullion and that trend should remain intact. Gold investors welcome an unbalanced global economic recovery as that supports easy-money policies to last a lot longer. China’s economic rebound is easing and that should drive Beijing to keep its accommodative fiscal and monetary policies in place for longer.
Gold could extend gains if the 10-year Treasury yield remains stuck in the mid-1.60% area. The biggest risk for gold right now seems to be a stronger dollar could emerge if restrictions in Asia become widespread.
If gold can close above the $1,855 level, bullish momentum could kickstart a bigger rally towards the $1,900 level.
Bitcoin
A Sunday afternoon Twitter storm sent the cryptocurrency markets into chaos. Elon Musk tweeted “indeed” to a post that indicated Bitcoin supporters could get punished next quarter if they find out Tesla dumped the remaining holdings of Bitcoin.
Musk has been actively supporting Dogecoin and becoming a critic of Bitcoin. He reminded traders that Bitcoin is actually highly centralized and that the mid-April Xinjiang flood of a coal mine led to the disruption of 35% of all Bitcoin’s global computing power(hash rate).
Bitcoin plunged over 9% on Sunday and fell into bear-market territory since Musk’s SNL appearance earlier in the month. Early Monday, Musk tweeted, “To clarify speculation, Tesla has not sold any Bitcoin.”
Bitcoin is stabilizing after Musk’s last tweet about Tesla not selling out Bitcoin, but his legion of followers might not be getting behind every endorsement tweet anymore.
