Bye-bye Santa rally, grinch selloff is here to stay

The Grinch selloff is firmly in place after Micron delivered a gloomy outlook and as better-than-expected US economic data supported the Fed's case for more ongoing rate increases. Global coordinated central bank tightening has yet to fully impact most of the economic readings for the major economies and that should have investors nervous over ​ earnings downgrades and credit risks.   

US data

Following another round of economic data, the US economy doesn’t look like it wants to head into a recession anytime soon. Jobless claims did not rise as much economists were expecting. Initial jobless claims rose slightly to 216,000, a beat of the 222,000 estimate.  Continuing claims remain anchored around 1.67 million.  This round of readings have a heavy seasonal impact so post holidays, claims should start to rise. 

The final Q3 GDP readings were rather surprisingly strong.  Q3 GDP finished at 3.2%, while personal consumption improved to 2.3%, core PCE ticked higher. 

Wall Street still is pricing in one more rate hike at the February FOMC meeting, but if the data does not break, a March hike should start to get priced in. 

Earnings

Micron’s earnings did not provide any optimism for the chip sector as they struggle with an inventory glut that will make it difficult for them to be profitable.  Micron’s results were soft and the guidance was not impressive.  The largest US maker of memory chips posted revenue in Q1 at $4.09 billion, a miss from the $4.13 billion consensus estimate.  Micron struggles and outlook forced them to make the announcement that they will lower headcount by about 10% next year. 

Oil

Crude prices are wavering as it’s been quiet on the macro front.  Energy traders seem to be ready for the holidays as we are not really seeing any exciting moves.  Since easing lockdown restrictions, China’s COVID cases and deaths are not significantly rising but many are questioning the reporting.  The oil market’s biggest wildcard is China and optimism is still strong that the reopening will continue and eventually lead to more demand for crude. 

OPEC+ should have an easy job over the next couple of months as they remain nimble and ready to adapt to whatever the trajectory appears to be for crude demand. 

WTI crude appears to have a floor at the $70 level and initial resistance at the $80 level, with major resistance at the $83.50 region. 

Gold

Gold prices are tumbling as the dollar catches a bid after better-than-expected US economic data.  The risks of more Fed rate hikes remain on the table as it seems the US economy  was a little stronger in Q3 and as the labor market remains very tight. Gold’s rally was already running on fumes so this selloff today kickstarted on profit taking and momentum took care of the rest. 

Gold is vulnerable to further downward pressure but the $1780 level should provide some support if the $1800 level breaks.    

Cryptos

The SEC continues to expand their investigation into the collapse of FTX.  Last night, charges were filed against Caroline Ellison, the former CEO of Alameda Research, and Zixiao Gary Wang, the former Chief Technology Officer of FTX Trading.  This is just the beginning of charges that will be filed to anyone that contributed to defrauding investors in FTX. 

Bitcoin and Ethereum are lower today as risk aversion runs wild across Wall Street.  Tech stocks are getting hit the hardest, thank you Micron, and that seems like it keeps pressure on all the interest-rate sensitive sectors.