Wall Street has become a rollercoaster ride as investors try to navigate through inflationary pressures, debt ceiling drama that everyone knows will eventually be resolved, and as global central banks start to deliver fastening tightening cycles.  It is hard to turn bearish on US stocks as growth exceptionalism in 2022 is widely expected.  Whipsaw Wednesday at one point had US stocks giving back the majority of yesterday’s gains as surging energy prices have spooked traders.  The bond market saw inflationary fears intensify as the energy crisis was worsening, but a Russia to rescue helped thwart off the surge in natural gas prices. 

Stocks are paring losses after Senate Majority Leader McConnell floated a short-term debt limit increase through November.  This just kicks the can down the road and likely will lead to further fighting amongst progressive and conservative Democrats.  If Mitch has his way, Biden’s economic plan will get delayed so much that they will have to wait till after mid-term elections.  Democrats won’t let this drag on too much further.  Wall Street still expects Biden’s economic plan to get finalized after it is slashed to something around the $2 trillion level. 

Complicating global risk appetite is quicker than expected tightening from central banks.  The energy crisis abroad has forced rate hikes from the RBNZ, National Bank of Poland, and Iceland’s central bank.   

ADP

The ADP report was promising and will likely increase expectations for Friday’s nonfarm payroll report.  Private payrolls rose by 568,000 jobs in September, the largest increase in three months, also beating the 430,000-consensus estimate.   Good-producing jobs increased by 102,000 and Service-producing jumped 466,000.    

ADP’s Chief Economist Richardson noted, “Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve, setting the stage for solid job gains in the coming months.”

If the labor market recovery takes off over the next couple of months, investors might price in a quick tapering, which should allow Treasury yields to make a run towards the highs seen at the end of March.

Natural Gas

Russia President Putin delivered a massive reversal for natural gas prices. It looks like Russia is coming to the rescue for European natural gas prices.  Putin noted that Russia is a reliable gas supplier to Europe and Asia and that they will boost its gas supplies to Europe. Putin claimed that we are ready to stabilize the energy market. 

Natural gas contracts were skyrocketing in Europe, above the $400 level and then came crashing down after Putin said Russia would stabilize energy markets.  Putin’s comments didn’t contain actual figures, so Europe’s energy crisis should not be deemed over.  Russia was already poised to deliver record levels to Europe, so it is unclear how much supply they will deliver.    

Oil

Crude prices are falling for a trifecta of reasons: Russian President Putin alleviated Europe’s energy supply concerns, US stockpiles rose more-than-expected, and after Saudi Arabia cut oil prices as slowdown fears accelerate as inflation worries grow.  

The EIA crude oil inventory report shows the Hurricane Ida impact is mostly gone.  Crude production rose 1.8% to 11.3 million barrels per day, approaching pre-peak hurricane season levels.  Gasoline demand dropped for a fourth straight week, which was somewhat expected given the end of summer travel and as many individuals continue to work-from-home.  Diesel demand is strong and that should prevent anyone from calling this a very bearish report. 

Every dip will be a buying opportunity for energy traders as the US will not be increasing production significantly and economic activity is expected to pick up next year.  The energy crisis from Europe to China is far from over despite Putin’s comments.  WTI crude may tentatively respect the $80 level, but that probably won’t last much longer.       

Gold

Gold prices can’t shake the bullish short-term outlook for the dollar.  Normally gold would be trading higher during a session where Wall Street is fixated with inflation while stocks and yields are down.  Gold prices won’t be able to muster up a rally if US real rates continue to rise. Complicating gold’s outlook is how it hasn’t behaved as a hedge against inflation.  Central banks all over the world are hiking rates to battle inflation, which has yet to disrupt dollar dominance.

Gold’s not only battling a strong dollar, but surging Bitcoin.  Normally, institutional investors would pile into gold on a day like today, but that seems to be happening for Bitcoin and not the precious metal.  Gold’s consolidating here and that should remain the case until China’s Golden Week ends. 

Bitcoin

Bitcoin prices are surging as regulatory fears for some crypto traders are in the rear-view mirror.  October is becoming a great month for cryptos after both Fed Chair Powell and SEC’s Gensler stated they don’t have any plans to ban cryptocurrencies.  Regulation is coming to cryptos, but measures

Bitcoin mania is back as retail traders and institutional investors completely embrace the long-term holding approach to cryptos.  Hodlers are celebrating today’s rally as Wall Street grow’s nervous over inflation and is turning to Bitcoin for safety.  Bitcoin mania is running wild and the current momentum could support a run towards the $60,000 level.  

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