US stocks are weakening once again after hot inflation readings and another round of hawkish Fed speak. Risky assets don’t stand a chance of a meaningful rally if the economy continues to show resilience while inflation continues to be significantly above the Fed’s Funds rate. Fed’s Mester signaled that a recession won’t prevent the Fed from tightening policy further and Bullard reiterated their determination to get rates to a level that can cool inflation.
Big-Tech Woes
Mega cap tech stocks got hit hard after Apple was delivered an extraordinarily rare downgrade by Bank of America. The downgrade emphasized the risk of weaker services and product demand given the current macro environment. Meta, the owner of Facebook and Instagram announced hiring freezes since the economy has yet to stabilize. Meta’s outlook is in shambles as they are looking at a terrible macro backdrop that will lead to falling ad rev and a Metaverse bet that does not seem like it will pan out.
FX
The dollar is finishing up an outstanding quarter on some weakness as the British pound rallies as the BOE signals they will need to deliver a significant response to the government’s tax cut plan. The move in the dollar going into quarter-end will likely see some profit-taking and rebalancing that could trigger more softness over the next 24 hours.
Oil
Stock market turmoil is dragging down crude prices as risk appetite quickly vanishes. A deteriorating crude demand outlook won’t allow oil to rally until energy traders are confident that OPEC+ will slash output at the October 5th meeting. The weakness with crude prices is somewhat limited as the dollar softens going into quarter-end. The rally in the dollar is far from over, but it could take a break over the next 24 hours.
Crude prices still seem like they are headed higher, but a de-risking moment on Wall Street could drag it back towards this week’s lows.
Gold
Gold pared losses as the dollar was unable to hold onto earlier gains. Gold is facing one last major surge higher with Treasury yields as the Fed remains in a good spot to tighten aggressively. The US economy has two main trends with data points; The consumer remains resilient and the labor market refuses to break despite some layoff announcements. Fed messaging has been consistently shrugging off recession risks which implies they will remain aggressive with rate increase in November and December.
The risks are still to the downside, but right now it seems gold has major support ahead of the $1600 level.
Crypto
Bitcoin was a volatile trade today as yesterday’s relief rally in equities was short-lived. Bitcoin’s correlation with tech stocks remains, but it isn’t breaking as bad as it has during most of this cycle. Bitcoin is still above the $19,000 level despite a near 4% drop in the Nasdaq. It appears Wall Street believes crypto is close to the bottom and will become an attractive diversification strategy once the peak in Treasury yields is in place.
Despite all the doom and gloom on Wall Street, calls for another crypto crash have been somewhat quiet. Once equities make a significant move lower, we will see if the crypto market can continue to show resilience. Bitcoin has major support above the $18,000 level.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.
Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news.
Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal.
Ed holds a BA in Economics from Rutgers University.
