US Close – A brutal week on Wall Street ends on a positive note, Fed reiterates commitment to restoring price stability, Oil plummets on outlook, Gold lower on strong USD, Bitcoin’s danger zone

The stock market selloff may have been overdone and exaggerated given this quarter’s ‘triple witching’ event. The expiration of stock futures and options may have accelerated the selling pressure leading up to today. ​ It has been a painful week on Wall Street as inflation has forced many central banks to become more aggressive with outlining their monetary tightening plans that will lead to significant slowdowns for their respective economies. ​ The Fed, ECB, SNB, and BOE are all poised to continue to tighten financial conditions throughout the summer. ​

Financial conditions are tightening, credit risks are rising, and liquidity risks are percolating.  Endless liquidity is no longer going to support large parts of the economy.  The housing market is cooling, economic weakness is hitting both manufacturing and service sector activity, and recession fears are surging.

The Fed reminded us that their commitment to restoring price stability is unconditional. Next week, Fed chair Powell will defend their hawkish pivot, while also doing damage control over the rising credit risks as a result of their aggressive tightening schedule.

Oil

Crude prices tumbled as the dollar rallied, Russia signaled oil exports should increase and as global recession fears grow.  The oil market looks like it won’t be tight for much longer as demand destruction calls grow as aggressive central bank tightening will lead to a short-term economic downturn. It also seems like the supply outlook for crude could see some short-term relief as US production grinds higher and over expectations that OPEC+ will follow through on their modest oil output hike pledge.

All the headlines seem to have turned bearish for oil and that could see further technical selling target the psychological $100 a barrel level.  Once this move lower is complete, oil should stabilize and trade comfortably above the $100 a barrel level as potential disruptions from either further sanctions on Russia oil or hurricane season will keep supplies at dangerously low levels.

Gold

Gold prices are softer as the dollar roars back as the Fed reiterates their commitment to fighting inflation.  An unconditional fight against inflation has kept the risk of higher Treasury yields on the table and that might mean gold could consolidate here.  Gold might be poised to trade between the $1800 and $1900 range until investors are confident that peak hawkishness has been priced in for the Fed.

After a week filled with central bank rate decisions and rising recession fears, gold is starting to look attractive. Too many pockets of weakness are emerging across the US economy and that should lead to steady safe-haven flows over the coming months.  ​

Cryptos

Bitcoin appears to be hanging on for dear life as cryptocurrencies remain in meltdown mode.  The worst week since the early days of the COVID pandemic has widespread crashes across Bitcoin, Ethereum and Dogecoin.  A Dubai-based crypto fund might be facing insolvency and fears of contagion are not easing.

This weekend could see added volatility for cryptos if Bitcoin breaks below the $20,000 level.  Another flash crash could see illiquid conditions have some traders send Bitcoin to that key bottom many traders have been eyeing. ​

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