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OANDA – Morning rebound faded as PPI remains elevated, Oracle impresses, Oil market remains tight, Gold lower ahead of Fed, MicroStrategy all-in on Bitcoin, Bitcoin holding above $20k
Wall Street was quick to fade the morning rebound that stemmed a modest improvement with producer prices, possibly providing some hope that core inflation continues to ease for businesses. Wholesale prices are still climbing higher and while they are slightly off the record annual pace, this report does not change anything for the Fed. Aggressive tightening over the next handful of policy meetings is the only course of action for the Fed.
Q1 2022 hedge fund letters, conferences and more
Sohn Conference: Druckenmiller Says Recession Coming Next Year
There’s been much debate about whether a recession is right around the corner or not. The hedge fund industry seems split on the matter. Managers who are rightly angered by the irresponsibly loose monetary policy that has dominated the world’s central banks are predicting a hard landing and a recession, but those who don’t see Read More
PPI
PPI rose 0.8% for the month and 10.8% over the past year. The April reading downward revisions across the board, so that could support the idea that consumers might see slightly less price increases passed on. The Fed will focus on the month-over-month readings and those are still rising. The headline 10.8% increase in wholesale prices for the month of May was lower by a tick for both the downwardly revised prior reading and consensus estimate.
Oracle
Thank you, Oracle! If Oracle Corporation (NYSE:ORCL) didn’t crush earnings and remind Wall Street that it is not all doom and gloom out there, US stock markets might have kept the selling pressure going. Oracle boasted a strong outlook as they saw a “major increase in demand” for cloud infrastructure. Oracle is somewhat viewed as a safe-haven tech trade and this strong fourth quarter performance, will keep it as a must hold on Wall Street.
Oil
Crude prices rallied as energy traders focus on the supply-demand imbalance that shows no signs of easing and shrugs off China COVID concerns and the early signs of crude demand destruction in the US. Gasoline prices are above $5 a gallon nationally and no relief is expected anytime soon. Refiners need to get diesel inventories higher otherwise we could see some shortages in the near future.
President Biden will visit Saudi Arabia in the middle of July, but that relationship is nowhere near being repaired and expectations for some agreement for more Saudi oil production seems very unlikely. The oil market remains supported here and until demand destruction becomes more noticeable, crude prices will remain supported.
Gold
Gold prices are consolidating above the $1800 level ahead of Wednesday’s FOMC decision. The FOMC decision will deliver the moment for gold traders. Traders are trying to calculate how aggressive the Fed will be with raising interest rates for the rest of the year.
Gold got a mini boost after a report on producer prices showed promise as core prices continue to come down from the peak. Regardless of how hawkish Powell is at the post-FOMC decision conference, a widening interest differential for the dollar against its major trading partners will make life hard for gold over the short-term. A break of the $1800 level might not see much support until the $1765 region.
MicroStrategy
One of the biggest Bitcoin backers, Michael Saylor remains committed to relentless belief with the world’s largest cryptocurrency. Saylor tweeted, “When @MicroStrategy adopted a #Bitcoin Strategy, it anticipated volatility and structured its balance sheet so that it could continue to #HODL through adversity.”
MicroStrategy is in danger of a massive margin call and there is no going back for them. In May, their president Phong Le noted that Bitcoin would need to lose half its value around $21,000 before they’d have a margin call.
Regardless of what happens with Bitcoin, investors should be hesitant to use MicroStrategy as their way of gaining exposure to cryptos. MicroStrategy could have bought protection at any point and they remain blindly bullish on cryptos.
Bitcoin
Bitcoin traders better be buckled up heading into the FOMC decision. Bitcoin is still holding the $20,000 level and if Wall Street gets a very hawkish decision and press conference, Treasury yields and the dollar could surge once again and that would test the line in the sand many crypto traders have drawn. If Bitcoin breaks below the $20,000 level, support might not emerge until the $17,000 level. Another crypto plunge might not see major support until the 2019 summer high around the $14,000 level.
Article By Edward Moya, OANDA
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