Wall Street is eyeing record territory after another round of US data suggests the economy is headed in the right direction, but not triggering any fears that policymakers should be rushing to tighten monetary policy. There is no rush to remove the punchbowl of stimulus as jobless claims are still elevated and durable goods data suggests manufacturing is still working its way through bottlenecks and supply shortages. It is hard not to be bullish stocks given that the Fed will still remain accommodative a while longer and as infrastructure spending seems inevitable.
After the Fed’s latest stress test results, banks could will most likely be eagerly ready to boost buybacks and raise dividends. JPMorgan, Morgan Stanley, and Wells Fargo are all trading higher.
US data
Disappointing durable goods and jobless claims didn’t unnerve markets. Jobless claims slightly declined to 411,00, from an upwardly revised 418,000 prior reading, while continuing claims improved modestly to 3.390 million. The trend remains favorable with jobless claims and the expiration of enhanced unemployment benefits only means the data will improve dramatically in July.
Durable goods data in May showed smaller-than-expected increases, but when combined with upward revisions to April, the underlying trend still looks good. Boeing is bouncing back, but supply shortages are still a big issue.
BOE
The BOE didn’t take any chances in letting the financial markets think that they are turning hawkish. The British pound declined after keeping rates steady in a unanimous decision and maintained the bond-buying program with an 8 to 1 vote. Outgoing Chief Economist Haldane voted to reduce asset purchases, but no one joined him, some thought Gertjan Vlieghe might have joined his hawkish camp. Currency traders were ready to send cable higher if one or two more dissenters joined Haldane.
The August BOE policy meeting will provide new forecasts and probably provide a slight shift to hawkishness. Right now, the argument that the Fed will be the last major central bank to tighten is losing steam. The BOE is expecting inflation to temporarily surpass 3%, which has them on inflation watch throughout the summer.
The British pound declined against all its major trading partners after the dovish BOE policy decision.
Oil
Crude prices are dipping over expectations Iran nuclear deal talks could resume as early as next week and over expectations OPEC+ will continue delivering a gradual increase in supplies. Saudi Arabia energy minister Abdulaziz noted that OPEC+ had a role in containing inflation, which should serve as a reminder that if $100 oil happens that could be a big hit to demand recovery story. Abdulaziz maintained his cautious stance but that did not preclude taking action.
Energy markets are in wait-and-see mode until the July 1st OPEC+ meeting and that probably supports some softness with oil prices. The pent-up demand across the US and large parts of Europe is too strong to warrant a major pullback for crude, so weakness could be limited to a couple of dollars.
Gold
Gold prices are hanging in there. Gold is trading sideways over inflation uncertainty, Fed shuffling away from ultra-dovishness, and an unbalanced global economic recovery. Earlier gold saw some support after Treasury Secretary Yellen reiterated her belief that inflation is transitory due to supply bottlenecks and that it will go back to normal after this year.
A big part of the longer-term bullish thesis for gold was for a weaker dollar to emerge during the second half of the year. Part of that argument was for financial markets to price in a broadly widening interest rate differential against the dollar. The Fed was expected to be the last major central bank to tighten but right now it looks like the ECB and BOE might not be rushing anytime soon to turn hawkish and that will delay dollar weakness.
Gold needs to recapture the $1,800 level before the end of the month, otherwise momentum selling will drag it back to the danger zone.
Bitcoin
Bitcoin is steadying after rebounding over the past couple trading sessions. It was a relatively calm 24 hours in crypto news, with most investors waiting for any clarity over progress in moving mining out of China or breakthroughs in climate conscious practices for mining. The two big stories of the day are Gemini’s ESG drive and Andreesen’s launching of a $2.2 billion fund.
Cameron and Tyler Winklevoss are driving the push to incorporate climate-friendly practices at Gemini Trust. The cryptocurrency exchange acquired roughly $4 million in credits to help offset the carbon emissions footprint of the Bitcoin it holds in custody. This is a nice public relations story for Gemini, but it emphasizes the urgency for cryptocurrencies to use renewable sources of energy.
Andreessen Horowitz is making a big bet on crypto with the introduction of a $2.2 billion fund. Continued fresh interest in cryptos is needed to help reinvigorate the dormant bulls.
Bitcoin has weathered a pretty brutal storm and further efforts need to be made on the environmental front quickly before the next round of regulatory fears percolate following the release of the Fed’s paper on digital currencies. Bitcoin needs to survive the summer and then the path higher will be much easier.
