Hawkish Bullard sinks stocks, Oil higher as US output to remain low, Gold stumbles after Bullard

US stocks went tumbling after St Louis Fed President Bullard strengthened the Fed’s hawkish commitment.  Bullard, a Fed voter in 2022 acknowledged that the FOMC has been surprised to the upside over the last 6 months.  His forecast is for a rate liftoff in late 2022.  Stock market volatility will remain elevated as today is quadruple witching, the expiration of stock-index futures, stock-index options, stock options, and single-stock futures.  

FX

Every time the Fed will give financial markets bullish horns, the dollar is poised to rally.  The more hawkish speak that comes from the Fed, bullish momentum could pickup for the dollar.  The Treasury curve has flattened and that is indicating a possible policy mistake by the Fed.  The economy will likely see an inflation overshoot and if financial stability is threatened over the next couple of years, that could complicate Fed tightening.  The dollar has become a momentum and that could remain the theme heading into next week’s wrath of Fed speak.      

Oil

Crude prices rallied after reports that OPEC officials were told to expect US oil output growth to be limited.   The industry experts are anticipating US oil output to increase by 200,000 bpd this year and by 500,000 to 1.3 million bpd in 2022.  

Despite a complete return to pre-pandemic life in the US, energy companies are cautious over keeping their balance sheets in order and will remain disciplined over making commitments over new wells.  

OPEC+ must love hearing US production is growing at a snail’s pace.  The battle for market share will clearly be won by OPEC+ and that should allow them to continue with their gradual easing of production cuts.  

The oil market does not have to worry about oversupply concerns anytime soon and that is keeping crude prices supported despite a broad selloff with commodities.  

Gold

Gold was licking its wounds this morning just before St Louis Fed President Bullard delivered another hawkish blow.  Bullard’s hawkish comment that pricing pressures could warrant interest rate hikes in 2022 sent gold back towards session lows.  

The Fed’s hawkish tilt made the bond market scramble this week and that chaos has been supportive for the dollar, which was terrible news for bullion.  The reflation trade no more and this selling across commodities could see further short-term pressure with gold prices.  Eventually gold will attract buyers as investors will either bet on inflation hedges or nervousness over a taper tantrum impact on growth over 2023.    

Crypto

Bitcoin tumbled as the demise over the Titan token raised the pressure of regulators to deliver more protections for the public.  Titan's crytpo crash was a surprise to many as it is a partially collateralized stablecoin. Given the risk-off environment that is hitting Wall Street, cryptocurrencies are under pressure.