ISM Plunges, stocks pare gains, dollar drops, oil rises, gold higher, and Ethereum breaks $3K, Bitcoin follows

The April ISM Manufacturing report delivered a steep decline that caught everyone off guard.  Given some impressive Fed regional surveys, a strong beat was expected by many.  Today’s miss is not really terrible, but perhaps a reminder that the Fed surveys only cover a portion of the country and miss a good part of the West Coast.  Expectations with US data may have become too optimistic, but this first look at April suggests the recovery is firmly in place, albeit at a slower pace.  US stocks did not know how to react to the ISM data.  Slowing growth along with soaring pricing pressures is somewhat a vindication for the Fed’s cautious stance but not necessarily supportive that inflation will be transitory.   

The S&P 500 index is holding onto modest gains, while the Nasdaq turned negative following steep drops with Tesla, Amazon, and AMD. 

FX

The dollar plummeted as surging input pressures from the ISM report justified inflation concerns.  The ISM’s prices paid jumped from 85.6 to 89.6, the highest reading since 2008.  The rest of the ISM report triggered a wave of growth concerns given noticeable declines across the other components.  The headline fell from 64.7 to 60.7, while new orders dropped from 68.0 to 64.3, and the employment component weakened from 59.6 to 55.1.        

EU

The Dax is outperforming most of its European peers after impressive retail sales and manufacturing activity.  German retail sales in March impressed with a 7.7% gain, stronger than forecast of 3.0%, and upwardly revised prior month’s reading of 2.7%.  Overall, European manufacturing PMI data suggests the recovery is progressing albeit slightly weaker-than-forecasts.    

Oil

Crude prices are climbing higher again on an improving COVID outlook for both Europe and Latin America.  The situation in India remains disheartening, but so far unlikely to be replicated elsewhere.  The crude demand outlook seems to have only one path and that is higher.  India is still trending at over 350,000 COVID cases a day, with a positive test rate at 21%.  The aid that is coming from the EU and US will help India but is unlikely to trigger an immediate decline in cases.  India, the third largest import of oil probably won’t see crude demand recover for a couple of months.    

The EU is feeling the pressure to reopen and the plan to accept travelers immunized with COVID vaccines should provide a big boost for tourism and the airline industry. 

WTI crude has recovered most of Friday’s profit-taking move but should still struggle to break above the March high. 

Gold

Gold prices are rallying now that Wall Street is pricing in higher Treasury yields at a slower pace over the next few months.  Gold got a boost after Treasury Secretary Yellen stated, “I don’t believe that inflation will be an issue. But if it becomes an issue, we have tools to address it.” 

It is taking some convincing, but investors are starting to believe that the current reopening trade and surging inflation reports won’t necessarily mean skyrocketing Treasury yields, which would drag gold down.  A complete recovery is gold’s kryptonite and that will only happen if substantial progress in the labor market occurs.  Bringing back all the low paying jobs will derail an acceleration with wage growth and that is why gold should still finish the year much higher. 

Gold is poised to make another run at $1,800 and if it does, bullish momentum may jump on this move.  Key resistance remains the $1,860 level, which could then pave the way for a run back towards the $2,000 level.  Massive support remains at the $1,745 level. 

Ethereum/Bitcoin

Ethereum surged over 12% to top $3,000 for the first time amid a broad cryptocurrency market rally.  Ethereum’s encrypted ledger might be costly and slow but that hasn’t stopped it from becoming the favorite cryptocurrency to use.  The use case argument justifies the appeal for Ethereum and the current social media buzz has many traders eyeing a run towards $10,000 before the end of the year. 

It used to be the other way around, but now Bitcoin is riding the coattails of Ethereum.  Everything crypto is rallying today now that financial markets are seeing US stocks already trade around the year-end target for many analysts.  Cryptocurrencies might be more volatile than stocks and bonds, but for many on Wall Street it still has a clearer trajectory.