US Close – A terrible week ends on a positive note, Crude prices rallying hard on optimism over China’s COVID situation, Gold pummeled

Wall Street is ready to close the books on this trading week.  US stocks are finishing on a high note as investors take comfort from a round of Fed speak that suggests financial markets won’t have to price in even more tightening of financial conditions over the next couple of FOMC decisions.  Fed’s Daly supports the idea of sticking with 50 basis-point rate hikes at the next two meetings.  Yesterday, Fed Chair Powell reiterated his support for raising rates at the June and July policy meetings, but obviously they would do more if the data comes in worse than expected. 

Stocks were ready to rebound as some investors remain hopeful the Fed will deliver a soft landing, while others are ready to buy the dip, and over optimism that China’s COVID situation is not worsening.  

Oil

Crude prices rallied on optimism that China’s COVID situation was not worsening and as risky assets rebounded. The crude demand outlook is not going to fall apart as the US enters peak driving season and as European air travel remains solid. The focus for much of the week has been on the EU’s inability to reach agreement on a Russian oil ban, which suggests we won’t have an immediate shock to the oil market.

Modest dollar weakness has also helped support the move higher across all commodities, including oil prices.  Some traders believe we may have seen a short-term peak in the dollar, but that might only provide temporary relief. 

US rig counts rose again, but until energy markets see stronger production levels reached, oil prices will likely remain supported here. 

Gold

It seems only a market close is what can slow down selling pressure that is hitting gold.  Gold has been beaten up as aggressive Fed tightening has sent the dollar soaring.  Gold has a problem that even if the bond market selloff is taking a break, investors are gravitating towards stocks and not the precious metal. 

Gold has tentatively tested the waters below the $1800 level and it still remains in the danger zone.  If risk appetite fades early next week, the technical selling could hit gold hard. If gold remains in the house of pain, selling momentum could test the $1750 level next week.  Any decent rebound in gold still might get faded with sellers likely emerging well before the $1840 level.  

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