Stocks bounce back, Bullard and Kaplan, Chicago Fed, oil rises, gold steady, Bitcoin lower

Wall Street is still feeling the impact of the Fed’s hawkish tilt.  US stocks are finding some footing as the growth outlook for the rest of the year is extremely robust, with growth targeting 8-10% and around 5% in 2022.  Despite all the hawkish spin from last week, the Fed will still likely move in 2023 and that means the US economy could still see another 18 months of support.  Inflation concerns will likely moderate, with many traders needing hot prints at the end of the year to prove pricing pressures are becoming persistent.  Stocks still have a clear path higher, but some traders will wait to buy a deeper pullback.  This week is filled with the wrath of Fed speak that could show many policymakers shift a step closer to the hawkish side. 

This morning, Fed’s Bullard and Kaplan spoke at the OMFIF Policy Panel.  Bullard stated that no one really knows how this is going to unfold but needs to be ready for upside risks to inflation.  Fed’s Kaplan noted that last week’s dot plots reflect a ‘dramatically improved’ outlook.  Bullard is one of the most hawkish Fed speakers and Kaplan was one of the handfuls of members that was willing to kickstart the taper discussion. 

The Dow Jones Industrial Average is leading the charge higher after posting nearly twice the drop last week.  The S&P 500 index is rising following a four-day losing streak.  The Nasdaq is underperforming as mega-cap tech takes hit from surging Treasury yields across the curve.

Chicago Fed

The Chicago Fed National Activity Index improved to 0.29 in May, a miss of the 0.70 consensus estimate, but much better than April’s -0.09 reading. Personal consumption broadly deteriorated, while housing indicators improved.  Overall, three of the four broad categories made positive contributions.  Today’s report is nothing to brag about but does show the economy in the Midwest is headed in the right direction. 

Oil

Crude prices edged lower after Iran’s presidential election yielded no surprises and the sixth round of talks failed to revive the nuclear deal.  Iran's new president is a 60-year-old hard-liner judge, who was sanctioned a couple of years ago by the Trump administration for being backed by Iranian Supreme Leader Ali Khamenei.  It seems the Biden administration is setting a hard deadline of six weeks, which is just before Raisi will be inaugurated in August.  Talks between Iran and world powers have not progressed enough to have the US in actual attendance. The longer talks drag, the further Iranian sanction relief is delayed.  Iranian output is expected to increase in the third quarter, but if no breakthroughs are made over the next few weeks, that could be in jeopardy. 

Summer travel demand has been intense for airlines, as a matter of fact it has been too strong for American Airlines that they need to reduce some flights to avoid potential strains.  It might end up only being 1% of flights that get removed in the first half of July, but it shows how difficult companies will struggle to ramp up operations. 

The President-elect is making the media rounds and any hardline comments will be taken with a grain of salt.  The roaring crude demand outlook should help WTI crude defend the $70 oil level. 

Gold

Gold prices are attempting to stabilize after last week’s bloodbath.  Wall Street is starting to expect a lot less stimulus getting pumped into the economy and that has been kryptonite for gold.  The Fed’s upgraded forecasts was mostly them playing catchup with their forecasts and the surge with yields at the shorter end of the curve was warranted. 

Gold will eventually return to becoming both an inflation hedge and safe-haven asset, but for now it trades solely as a risky asset.  Something will break gold’s way over the short-term, either stocks start to feel the rumblings of a sooner-than-expected taper tantrum or the dollar’s rebound is temporary. 

Bitcoin

Bitcoin needs to expedite transitioning mining out of China.  Over the weekend, Bitcoin was under pressure on continued measures against Bitcoin creators in Sichuan, which uses hydropower.  The cryptocurrency mining community is rushing to get out of coal-fired power plants but losing clean energy sources is extra bitter. 

MicroStrategy announced another purchase of Bitcoin, this time 13,005 Bitcoin worth $489 million at an average price of $37,617 per Bitcoin.  MicroStrategy has been under pressure as many investors doubt owning shares of MSTR is the best way to get your crypto exposure.  If you have a buy-and-hold mentality for crypto, you might prefer directly buying Bitcoin than buying shares of MicroStrategy, who appears poised to consistently be buying Bitcoin going forward. 

Bitcoin remains trapped in the $30,000 to $41,000 range, but downside risks are catching the eyes of everyone.