Fed aftermath, jobless claims disappoint, king dollar, oil drops as UK cases surge, gold hurt

Fed Aftermath

The day after the Fed’s hawkish surprise is filled with investors trying to price in the end of monetary stimulus.  Despite yesterday’s pivot, the Fed is still at risk of moving too slow.  The latest update to their forecasts shows that they have no clue where inflation is going and that has some traders nervous.  In three months time, the Fed has bumped up their 2021 inflation forecast from 2.4% to 3.4%.  While the argument for transitory inflation is strong, the Fed’s reliance on actual data and not forecasts is raising the risk that they will move too slowly. 

US stocks were mixed as big-tech makes a comeback as longer-term Treasury yields plunge, while a commodity selloff is dragging down some of the Dow's key components (Dow, Chevron, and Caterpillar). The Nasdaq is higher by 1.2%, while the S&P 500 index is roughly flat, while the Dow Jones Industrial Average is 0.8% lower.  

The dollar is king again and will continue rule as long as this commodity selloff continues.  

Jobless Claims

A significant rise in jobless claims did not unnerve investors as their priorities now have inflation first and employment second.  Initial filings for jobless benefits rose from 376,000 to 412,000, a big bump from the consensus estimate of 360,000.  This will be a very noisy figure as some Americans might be rushing in their filings before some benefits expire in July. 

Since half the states will be ending their federal unemployment benefits, claims are widely expected to start dropping.  Next week’s jobless claims figures should improve and by the end of July, we could start to see sub-300,000 readings. 

Continuing claims also missed expectations for a modest improvement, printing at 3.518 million, mostly flat from the upwardly revised 3.517 million prior week.   

Philly Fed

Manufacturing in Philly remains strong, the latest survey shows general activity, new orders, and shipments remain elevated.  The headline index dipped from 31.5 to 30.7, a small miss of the 31.0 economists’ forecast.  The key takeaway from the Philly Business Outlook was that price increases remain widespread.  The first gauge of pricing data post the Fed’s hawkish shift showed Philly prices paid jumped 4 points to 80.7, the highest reading since 1979.  If this trend continues to accelerate, Wall Street might think the Fed is dragging their feet over tightening.   

Oil

Crude prices tumbled after the UK reported over 11,000 new COVID cases, the most since mid-February.  The crude demand recovery playbook has not been recently threatened at all, but this UK surge in COVID cases despite rapid vaccinations will raise many alarms over how quickly the rest of Europe will reopen.

Brent crude could be ripe for further profit-taking if more optimistic comments come from the latest round of Iran nuclear deal talks.  Brent crude might not find much support at the $70 level, but a major pullback seems unlikely.   

Gold

Gold did not do a good job of defending the $1,800 level and now momentum selling has taken prices 38% below the $1,919.20 high made at the beginning of the month.  Gold’s overflowing stimulus trade was ended yesterday by the Fed’s dot plots.  The taper tantrum trade is hitting gold the hardest right now and could last a couple more sessions. 

Gold did see a little bounce after a surprise increase with jobless claims but that quickly faded.  Gold looks like a falling knife but eventually the longer-term prospects will attract buyers.  Long-term bets on gold could start to emerge closer to the $1750 level, but some might wait and see if one last thrust lower eyes the $1,675 level. 

Crypto

Iron Titanium Token, a DeFi protocol collapsed from $60 to spare change in 24 hours.  Some are attributing the plunge to panic-selling by whales.  Billionaire investor Mark Cuban tweeted “I got hit like everyone else.  Crazy part is I got out, thought they were increasing their TVL (total locked value) enough.  Than Bam.” 

Titan was considered somewhat a safe coin given it was linked to a stablecoin known as Iron, which has some support from USDC. 

Given the recent strength with the dollar, Bitcoin is holding up nicely.  Bitcoin continues to remain rangebound and is unfazed from the collapse of Titan.