Weekly: The Beatings Will Continue
until hope is replaced by despair
Housekeeping: This Monday and every Monday we do a Silver/Gold podcast on Arcadia Economics. We request you take a look and subscribe to the other excellent silver-based content on that site. Much of the content in our podcasts builds on comments we make here on metals.
SECTIONS
Market Summary— The Beatings Will Continue
Research— Macro, Gold TA, Oil, and CHiPs
Week’s Analysis/Podcasts— Hartnett, Paulson, Geopolitics
Charts— Metals, Energy, Forex
Calendar— Retail, Confidence
Technicals— GC, CL, BTC, SPX
Zen Moment— Risk Analysis and Stacking Hamsters
Full Analysis— AS, TD, TS, Citi, Nomura
1. Market Summary
The market’s behavior mirrored expectations of increased inflation-fighting and declining earnings with no Fed silver lining coming to justify buying a dip. Yields were up, duration (tech) was down.. and commodity businesses were soft despite inflation being higher. Even energy, which was supported by higher inflation numbers and strong oil was less strong than in the recent past
A week of hotter than expected data (especially in stickier-than-expected inflation-related data)
All the US Majors ended the holiday-shortened week in the red (Dow's worst week since September), down around 3%
Goldman's Chris Hussey summarizes the recent disinflation hopes evaporating on Friday perfectly:
As we went through January, evidence mounted that inflation was indeed receding in the US and perhaps the coast was clearing for monetary policy, a soft landing of the economy, and perhaps even a reacceleration of activity with a boost from Europe and China.
But two reports in successive weeks here in February have called that narrative into question...
...led Goldman's economists to add an additional 25bp rate hike from the Fed, and pushed up yields on 10-year Treasuries by 60bp to 3.95% - nearing the top-end range we have seen in this cycle (yields peaked at 4.23% in October).
Today's higher than expected PCE inflation reading seems to confirm what we saw in last week's high PPI wholesale inflation report - that is that prices are continuing to rise in the US and that the rate of increase may not be receding as fast as it had been last fall (if the rate is receding at all)...
...policymakers - notably central bankers - have indicated that they are for the most part data dependent, providing further support to the view that we are in a higher-for-longer rate environment.
Data has driven inflation expectations roaring back to cycle highs as the 'Fed Pivot' narrative collapses
Which means the market is fully pricing in 75bps of hikes in the next 3 FOMC meetings
The beatings will continue until hope is replaced by despair.
Sector/Technicals
NVDA, a chip company exploded on earnings misses, but promises of a better future
The S&P 500 closed below its 50DMA, trapped in a range just above its 200DMA
Nasdaq found support at its 200DMA for the last two days
Consumer Discretionary and Real Estate sectors were the ugliest horse
Consumer defensive was strong as was Healthcare again.
Commodities
Dollar ripped higher this week, erasing all the losses since the January payrolls plunge
Gold was down for the 5th straight week, but held above $1800
US NatGas prices soared higher this week (after first hitting a $1 handle) - the biggest weekly rise for Henry Hub since Thanksgiving.
In the year since the start of the war in Ukraine, the Russian Ruble has strengthened 11% against the USDollar, Brent Crude is down 16% and EU NatGas has crashed 55%
Bonds:
Treasury yields were higher across the curve
Yield curve inversion increased even more
Crypto:
Crypto hit a brick wall this week and succumbed to the worries ailing the rest of the world
Bitcoin ended with the worst week since November
Gold and Silver
Risk markets are taking a beating amid a firmer PCE print and strong consumer spending. With market pricing for Fed hikes set to move even higher, the odds of a hard landing are also increasing.
This spells bad news for both precious metals and base metals moving forward. Indeed, the recent weakness has seen CTAs flatten their gold positions, while silver has shifted into a net short, and we believe precious metals could still come under further pressures as the restrictive rate regime lasts for longer.
On the industrial metal side, the lack of a strong demand impulse in response to the Chinese reopening has left the complex more prone to the macro side of the equation. In that sense, the more hawkish Fed pricing is also weighing on industrial metals.
In this regard, aluminium and zinc appear the most prone to another bout of CTA selling, while copper would need to see further downside momentum to trigger selling flows as supply side issues continue to shelter the red metal in relative terms.
2. Research:
Themes: Housing still strong, employment still strong, inflation bottoming, CHiPs go to South Korea, Too much Oil, one year anniversary of Ukraine war…
**Academy Securities Weekly (Geopolitical)
CITI- Inflation Is Not Yet Defeated
**NOMURA- Data Supports More Aggressive Action By The FedGold Technical Report
TD- Advanced CTA Position Tracker
RBC- Commodity Comment: Risk for More- Sell side research
**Tech/ Chip War- Next Steps
**Moody’s- Global Oil is Oversupplied - good overview of lots of things
TS- FAKE CYCLES WITH UNUSUAL ENDINGS- discusses the business cycle subjugated to the bigger picture, recaps last 3 years
MUCH MORE AT BOTTOM…
3. Week’s Analysis/Podcasts:
Weekly Part 1: Echoing Pozsar, Hartnett says "War is Inflationary"
Exclusive: Why ChiPs may be as important as Oil in the Future