1. Stock investors that have turned too optimistic about the economic outlook are setting up for disappointment, according to JPMorgan Chase strategists. Wall Street traders refrained from making any huge bets in the run-up to the highly anticipated minutes of the Federal Reserve’s latest policy gathering, with stocks, bonds, and the dollar posting small moves. After staging a rebound in the first half hour of trading on Wednesday, the S&P 500 struggled for direction. Expensive US equities are flashing a warning sign that could see the S&P 500 sliding as much as 26% in the first half of this year, according to Morgan Stanley strategists. The gauge has already given back more than half of this year’s rally and is trying to hang on to its 50-day moving average. Treasury two-year yields, which are more sensitive to imminent Fed decisions, dropped from the highest point since 2007. The dollar fluctuated. It’s too early to say a recession is off the table following the Federal Reserve’s aggressive hiking campaign, especially since monetary policy’s impact on the economy can have a lag of one to two years, a team led by Mislav Matejka wrote in a note. The central bank is likely to pivot only in response to a much more negative macroeconomic backdrop than markets are currently expecting. “Historically, equities do not typically bottom before the Fed is advanced with cutting, and we never saw a low before the Fed has even stopped hiking,” the strategists wrote on Monday. “The damage has been done, and the fallout is likely still ahead of us.” Global equities have rallied this year as hopes for a Fed pivot, China’s reopening and Europe’s easing energy crisis provided support. But signs that inflation remains a persistent problem in the US are starting to show once again, weighing on markets. Commentary from hawkish Fed officials has also sparked fears that US rates could peak higher than previously expected. The first quarter is likely to mark the highest point for stocks this year, said Matejka, who turned cautious on the outlook for stocks toward the end of last year after remaining positive for much of 2022.
2. The euro area’s central banks will disclose their first significant losses from a decade of money printing in the coming weeks, entering a new era of scrutiny and the prospect of taxpayer bailouts. When the European Central Bank reveals annual results on Thursday, officials are expected to warn of big shortfalls this year and next across the region as higher interest rates make the cost of servicing deposits built up through quantitative easing soar. “Results will turn negative for many banks already in 2022, because of the mismatch of interest rates on assets and liabilities,” Bank of Portugal Governor Mario Centeno said in an interview. “We finance ourselves now at higher interest rates, which do not match the return of bonds and all sorts of debt in the central bank’s balance sheet.” Euro-area losses would add to a list of examples globally, with the neighboring Swiss National Bank standing out for its record shortfall last month. The Bank for International Settlements insisted this month that such outcomes don’t matter, that central banks can operate with negative equity, and that they can’t go bankrupt. Above all, officials claim losses have no bearing on monetary policy. The combination of high inflation, blamed partly on QE (Quantitative Easing), and any taxpayer transfers needed to reverse negative capital positions can be seen as “a super tax on economies,” he said. “Together with central banks not providing windfall gains anymore means the public deficit increases,” he said. In the worst case, filling financial holes at central banks could mean governments “needing even higher taxes.”
3. Oil extended its longest run of losses this year ahead of the release of Federal Reserve minutes that may provide clues on the path ahead for monetary tightening in the US. The prospect of more aggressive interest-rate hikes to quell inflation has kept a lid on crude prices despite increasing evidence of a robust recovery in Chinese demand following the end of Covid Zero rules. West Texas Intermediate traded below $75 a barrel, declining for the sixth straight session. Oil has endured a bumpy start to 2023 as investors juggle persistent concerns over a global economic slowdown and optimism around China’s reopening. The fallout from sanctions on Russian energy and the rerouting of global flows has added another element of uncertainty to the global market, with exports climbing again last week. “We still expect the market to eventually turn its attention to an expected tighter market balance in the second half and the Chinese reopening,” said Arne Lohmann Rasmussen, head of research at A/S Global Risk Management Ltd. “More robust data currently fuel expectations that the Fed will have to hike rates to a higher level and keep them there for an extended period.” Morgan Stanley on Wednesday became the latest bank to trim price forecasts, projecting that the market will be oversupplied in the first quarter and balanced in the second quarter, before edging into a deficit in the second half.
4. After making more money than ever in the last few years, some of the world’s top energy traders are using the cash to expand in metals and agriculture. The bumper profits reaped from trading oil and gas have given them cash to invest in an opportunity to diversify into other commodities. While it’s not the first-time major energy merchants have leaned into such markets, there are several reasons their interest is rising now. The energy crisis and Russia’s war in Ukraine fueled the volatility that traders crave and underscored how one commodity can impact another, such as high gas prices curbing metals output and boosting fertilizer costs. Plus, metals like copper and lithium are crucial to the energy transition away from fossil fuels and a US renewable diesel boom is boosting crop demand, helping to connect commodity markets. “It’s sensible diversification,” said Manish Marwaha, a commodities consultant and former strategy director at agriculture giant COFCO International. “Margins and revenues in agricultural and metals trading have proven resilient in recent years.” A move into other commodities markets makes sense for some major energy traders looking to recoup revenues lost from broadly exiting the Russian oil business, Marwaha said.
5. Sales of previously owned US homes unexpectedly declined for a 12th-straight month in January, extending a record decline and underscoring how high mortgage rates continue to stifle housing activity. A gauge of US home-purchase applications tumbled last week to the lowest level since 1995 as the highest mortgage rates in three months hammered a housing market struggling to stabilize. Contract closings slipped 0.7% at the start of the year to an annualized pace of 4 million, according to data from the National Association of Realtors on Tuesday. The pace of purchases, which was the weakest since 2010, fell short of the median projection of 4.1 million in a survey of economists. Still, the pace of monthly sales declines has slowed. Houses are also sitting on the market for longer, leading some sellers to accept lower prices. That, in turn, could help alleviate the affordability challenges stemming from the Federal Reserve’s rapid increase in interest rates. “Home sales are bottoming out,” Lawrence Yun, NAR’s chief economist, said in a statement. “Inventory is still low, but buyers are beginning to have better negotiating power. Homes sitting on the market for more than 60 days can be purchased for around 10% less than the original list price,” Yun said. Properties remained on the market for 33 days on average at the start of the year, up from 19 days a year earlier. That’s helping to put downward pressure on home prices. The median selling price was up just 1.3% from a year earlier, the smallest annual gain in home prices in nearly 11 years. The value of the US housing market shrunk by the most since 2008 as the pandemic boom fizzled out. After peaking at $47.7 trillion in June, the total value of US homes declined by $2.3 trillion, or 4.9%, in the second half of 2022. That’s the largest drop in percentage terms since the 2008 housing crisis when home values slumped by 5.8% from June to December.
6. Tim Berners-Lee, the man credited with inventing the World Wide Web, recently revealed that he is not a fan of cryptocurrencies, calling the asset class “dangerous” and likening crypto investors to gamblers. The comments from Berners-Lee came during a discussion on the future of the internet, with the computer scientist saying that digital currencies are “only speculative” and comparing the growth of the crypto industry to the dot-com bubble where internet stocks with little to no fundamental value became highly inflated. “It’s only speculative. Obviously, that’s really dangerous,” Berners-Lee told CNBC. “It’s if you want to have a kick out of gambling, basically. Investing in certain things, which is purely speculative, isn’t what, where I want to spend my time.” While he is not a fan of the sector in general, Berners-Lee acknowledged that one area where digital currencies could be useful is in helping remittances but said that such transfers would need to be immediately converted back into fiat once they have been received. The British computer scientist has been unsatisfied with the direction of development of the World Wide Web since he was credited with its invention in 1989, and he is now looking to reshape the future of the internet through his startup Inrupt, with the goal of giving people more control of their data. Many in the crypto industry are focused on the development of Web3, a decentralized version of the internet that runs on blockchain technology and takes away some of the power from companies like Google and Facebook that currently dominate the market. Berners-Lee prefers to think of the future of the internet as Web 3.0, which he differentiates from Web3. “It’s not blockchain,” Berners-Lee said, suggesting the technology isn’t fast or secure enough. His comments echo recent statements from Federal Reserve Board Governor Christopher Waller, who said that crypto assets are nothing more than speculative assets and are like baseball cards. Waller also acknowledged that there are some potentially beneficial applications of blockchain technology, like smart contracts and tokenization, but stressed that most cryptocurrencies have no intrinsic value and are risky investments.
7. In the week ending February 18, the advance figure for seasonally adjusted initial claims was 192,000, a decrease of 3,000 from the previous week’s revised level. Last week’s level was revised up by 1,000 from 194,000 to 195,000. The 4-week moving average was 191,250, an increase of 1,500 from the previous week’s revised average. Last week’s average was revised up by 250 from 189,500 to 189,750.
8. After an initially subdued reaction to yet another crude oil build in the US on Thursday, oil prices fell on Friday morning as bearish sentiment built. Speculation of further Russian production cuts and a rebound in Chinese demand had held oil prices higher, but inflation fears and continued inventory builds eventually sent prices lower. The EIA’s report weighed particularly heavily on WTI (West Texas Intermediate), opening an arbitrage window into both Europe and Asia. Ultimately, inflation fears and continued inventory builds pushed oil prices lower, with Brent trending around the $81 per barrel mark. WTI is trading Friday @ $74.40 per barrel.
9. EUR/USD came under renewed bearish pressure and dropped to a fresh 2023 low below 1.0550 after the data from the US showed that PCE (Personal Consumption Expenditure) inflation rose at a stronger pace than expected in January. The pair remains on track to post its lowest weekly close since early December.
10. The USD/JPY pair is seen building on its strong intraday rally from the 134.00 mark and scaling higher through the early North American session. The momentum picks up pace in reaction to the stronger-than-expected US PCE Price Index and lifts spot prices to the 136.00 neighborhood, or the highest level since December 20.
Alarm bells sounded on Wall Street in early 2021 when a financial-technology outfit backed by Walmart lured two highly regarded executives away from Goldman Sachs. The world’s largest retailer had been trying for years to expand into financial services. Perhaps, the thinking went, it was finally poised to take on big banks. Eighteen months later, the fintech business, known as One, is emerging from the shadows with an upgraded app and a looming marketing push. For now, the venture looks less like a threat to the masters of the financial universe and more like a tool for Walmart’s push to keep pace with Amazon, which has grown beyond its e-commerce roots into a giant offering consumer everything from prescription drugs to their favorite television shows to groceries. But traditional financial institutions still could face trouble if the large brick-and-mortar retailer aggressively adds banking to its line of consumer businesses. The overarching goal for Walmart is to build an array of services that complement its low-margin retail operations while keeping shoppers inside the company’s ‘ecosystem.’ For Walmart, that means expanding not only through banking services but also through digital advertising, health care, an online marketplace with third-party sellers, and a membership program not unlike Amazon Prime. “We’re building a different business, and we’re making progress,” Chief Executive Officer Doug McMillon said on the company’s latest earnings call in August. Walmart still lags far behind Amazon in online sales, but it’s making headway on other fronts. In banking, the aim is to boost customer loyalty by offering basic financial services and embedding itself more deeply in customers’ lives. “You’re trying to make your ecosystem the most convenient way to transact,” says Simeon Gutman, a retail analyst with Morgan Stanley. “It keeps more eyeballs in the same place.” To be sure, One is entering a field littered with fintech that has come before it. Companies such as Chime and Current have plastered their names all over subway cars and billboards across America, adding millions of customers to their ranks by offering spiffy apps. Still, with One’s revamped app added to the mix, banks will now essentially be going up against a fintech with a massive branch network.
While recent data suggest the economy might be able to dodge a recession, they’ve also taken the possibility of a Federal Reserve pivot off the table, according to a team led by Michael Wilson. That doesn’t bode well for stocks as the sharp rally this year has left them the most expensive since 2007 by the measure of equity risk premium, which has entered a level known as the “death zone.” The risk-reward for equities is now “very poor,” especially as the Fed is far from ending its monetary tightening, rates remain higher across the curve and earnings expectations are still 10% to 20% too high, Wilson wrote in a note. “It’s time to head back to base camp before the next guide down in earnings,” said the strategist — ranked No. 1 in last year’s Institutional Investor survey when he correctly predicted the selloff in stocks. After sinking into a bear market last year, US stocks have rallied in 2023 as signs of easing inflation fueled bets the Fed could slow the pace of rate hikes. But policymakers have warned that interest rates could rise further as price pressures remain elevated, while a glum outlook for corporate earnings has dampened risk sentiment in the past few days. The S&P 500’s so-called MACD momentum, which shows the relationship between two moving averages of a security’s price, is now weakening. Others on Wall Street have also warned that the recovery in stock markets may have gone too far.
Mortgage rates in the US rose to the highest level since November, ramping up the pressure on potential homebuyers. The average for a 30-year, fixed loan was 6.5%, up from 6.32% last week, Freddie Mac said in a statement Thursday. That marks a third straight week of increases. Higher borrowing costs are translating into weaker demand as the industry prepares for its key selling season. Mortgage applications recently dropped to the lowest level since 1995 and sales of previously owned US homes unexpectedly declined for a 12th straight month in January. “The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market, and the threat of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. The increases have fueled a surge in borrowing costs over the past year. Buyers with a $600,000 mortgage would now pay $3,792 a month on average, about $965 more than the same time a year ago.
Volatility should be expected to remain high as investors will be closely watching for hints on upcoming monetary policy direction. Many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hopes that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and during times of economic turmoil. Remember, the key to profitability through the ownership of physical precious metals is to own the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.
Trading Department – Precious Metals International, Ltd.
Friday to Friday Close (New York Closing Prices)
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Previous Years Comparisons
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Here are your Short-Term Support and Resistance Levels for the upcoming week.