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U.S. EQUITY MARKETS PERK UP, DELIVER BEST WEEK IN 17 MONTHS
All three major U.S. stock indexes turned solidly positive last week, ending several weeks of slumping prices and turning in their best performance since the week ending 6 November, 2020.
The Dow Jones Industrial Average grew by 5.5 percent over the week, the NASDAQ 8.2 percent, and the Standard & Poor’s 500 6.2 percent.
Oil prices fell back, with Brent crude down 4.2 percent to $107.93 on 18 March. Soaring oil prices, especially after Russia’s invasion of Ukraine, had spooked investors about the economy’s future direction.
The U.S. Federal Reserve bumped up interest rates by a quarter-point (see related story in this issue) and announced that six more hikes are likely this year, boosting investors’ confidence that inflation will be controlled, The Wall Street Journal reported.
But what will the rising interest rates do to economies that is not being reported? For an inside look, read Gregory Mannarino’s article in this issue, “Global Debt to SURGE HIGHER From Here, Faster Than Ever Before.”
Also, investors imbibed the confidence in the overall economy expressed by Fed chair Jerome Powell, who cited large household savings and still-strong consumer demand as indicators that a recession is unlikely.
In addition, corporations’ fundamentals now show that U.S. businesses can be profitable even in the face of geopolitical turmoil and as commodity prices march higher, investors told the WSJ.
The yield on the bellwether 10-year treasury note rose for the week, although it slipped from 2.192 percent Thursday to 2.146 on Friday.
Abroad, Europe’s Stoxx 600 added 5.4 percent, also its best week since November 2020.
The Shanghai Composite index rose through the week’s last three trading sessions after China’s government showed support for capital markets (see related story in this issue). Hong Kong’s Hang Seng gained more than 4 percent for the week.
TREND FORECAST: As we say, no one can predict the future. There are always “wild cards” that can be dealt by man or nature that can’t be predicted.
No better example than the Biden Sanctions—which we have greatly detailed in this and previous Trends Journals—which will drive inflation much higher than we had anticipated.
Therefore, we had forecast that as the Fed’s benchmark interest rate reaches, then passes, 2 percent, the market for homes and mortgages will enter a dramatic downturn, as will U.S. equity markets.
But now, with inflation spiking, the rate hike may have to reach 2.5 percent, because when considering rampant inflation, the interest rates will still be deep in negative territory.
TREND FORECAST: The highly priced housing market risks a sharp downturn if the current trends are not reversed. Last year at this time in the U.S., a 30-year fixed mortgage was around 3.45 percent. Since last Friday, the average rate jumped 26 basis points higher, hitting 4.72 percent according to Mortgage News Daily (MND).
“Rates have a small chance to top out before hitting 5 percent and a good chance of topping out before hitting 6 percent,” said Matthew Graham, chief operating officer at MND who was quoted by CNBC. “It is a rapidly moving target in this environment, where we legitimately and unexpectedly find ourselves needing to be concerned with inflation for the first time since the 1980′s.”
With housing prices up some 19 percent in January year over year, according to CoreLogic, more first time home buyers will be locked out of the housing market. Will there be a housing crash? Not unless there is an unforeseen wild card. (See additional articles on housing in this Trends Journal including: “THE HOME SALES SLIP; MORTGAGE RATES BREAK ABOVE 4 PERCENT FOR FIRST TIME IN THREE YEARS; RISE IN HOME EQUITY OUTSTRIPS U.S. ANNUAL INCOME.”)
Yesterday
Following Fed Head Jerome Powell’s comments that interest rates would rise quicker than anticipated—which we noted above—equities that were up earlier in the day went down, with the Dow falling 201 points, the S&P 500 slipping 0.1 percent and the Nasdaq closing down 0.4 percent.
Overseas, the Stoxx Europe 600 was basically flat, and major indexes in Asia were mostly down with South Korea’s Kospi falling 0.8 percent, Hong Kong’s Hang Seng off 0.9 percent and China’s Shanghai Composite up just 0.1 percent. Japan’s markets were closed for a holiday.
Russia’s stock market remained closed.
Today
Mirroring what we had noted above, that even if the Fed is more aggressive in raising interest rates, considering the spiking inflation rate, borrowing money will still be cheap, the markets in the U.S. rebounded with the Dow moving up 254.47 points, while the S&P 500 and Nasdaq climbed 1.1 percent and 1.95 percent respectively.
Overseas, Asia-Pacific Hong Kong’s Hang Seng spiked 3.15 on the news that Alibaba would increase its share repurchase program from $15 billion to $25 billion. The NIKKEI climbed 1.48 percent, while China’s Shanghai Composite moved up 0.9 percent.
GOLD/SILVER: With fears that the Fed will aggressively raise interest rates, gold—highly sensitive to rising rates since they increase the opportunity cost of holding non-yielding bullion—fell 0.73 percent to close at $1921 per ounce.
Silver prices also sank, losing 42 cents an ounce to close at $24.89 per ounce. Both precious metals are trading a bit up from last week’s close.
TREND FORECAST:. With inflation at its highest levels in 40 years and escalating sanctions on Russia driving inflation yet higher… and longer, we maintain our forecast for stable and rising precious metals prices.
Also, increasing geopolitical tensions with Russia and Ukraine and Israel and Iran—as we note in this and previous Trends Journals—will also solidify precious metal prices. Prices will push higher as geopolitical tensions increase and they are treasured as the predominant safe-haven assets.
Indeed, as evidenced by their recent upward spikes, the higher geopolitical tensions rise, the higher inflation rises, the deeper equities fall… and the higher precious metals will rise.
OIL: With increasing support for a ban on Russian oil spreading across the European Union, oil prices are on the rise again after pulling back last week when they closed down more than 27 percent from recent highs with Brent Crude down to $98.78 per barrel and West Texas Intermediate ending the day at $95.35 per barrel.
After spiking 7 percent yesterday, Brent Crude was down just 14 cents to close $115.48 per barrel and WTI slipped 36 cents to close at $111.76 per barrel.
Keep on Pumping
With Russian oil disappearing from world markets because shippers are unwilling to haul it as a result of the Biden imposed and EU sanctions, the world faces an energy crisis unless Saudi Arabia and the United Arab Emirates (UAE) pump more crude, the International Energy Agency (IEA) warned.
The sanctions, coupled with shippers’ refusals, will leave the world with three million barrels a day less than it has now, the IEA calculated.
The world’s oil supply already was critically short of demand before Russia invaded Ukraine, as we reported in “OPEC+ Refuses to Pump More Oil Despite Shortage, Soaring Prices” (8 Mar 2021) and the globe now faces its worst energy crunch in decades, the IEA said in its monthly report released 16 March.
The IEA cut its 2022 oil-supply forecast by two million barrels a day to 99.5 million, based on the rate at which producers are pumping oil now.
Oil prices soared to as much as $139 a barrel when Russia invaded Ukraine. Prices have fallen back sharply from that peak but remain about 40 percent higher than a year ago.
Sanctions and the disruptions of war also have jacked up prices on other commodities, including not only coal and natural gas but also steel, aluminum, and other natural resources for which Russia is a key supplier.
Higher prices of raw materials will reduce manufacturing, thus trimming oil demand this year, but only by about 1 million barrels a day, the IEA said—not enough to offset the wider shortfall in Russian crude.
The oil market will be unable to meet the world’s daily demand as soon as next month unless Saudi Arabia and the UAE begin tapping their idle production capacity, the IEA said.
There are no other sources able to produce enough oil to replace the shortage, the IEA warned.
U.S oil inventories last week were 13 percent lower than they were a year earlier, the U.S. Energy Information Administration reported.
TREND FORECAST: Europe’s sudden scramble to replace Russian oil and gas will have two consequences.
For the time being, the continent will import more coal, oil and natural gas from friendly nations to get by in the short term. Those supplies will not be enough to meet demand.
Meanwhile, the European Union is drafting a plan that will accelerate the region’s shift to renewable sources of energy.
The Ukraine war’s silver lining is a reminder that national security is only as secure as oil and gas supplies, which is not very. The war will focus renewed interest and national policy on the transition to green power sources, but that will be decades away considering the available energy alternatives.
BITCOIN: Last week the cryptocurrency was trading $39.634 per coin, today, as we go to press it’s in the $42,600 range.
TREND FORECAST: While Bitcoin hit a three-week high as the broad range of cryptocurrencies moved up along with stock indexes, we maintain our forecast that bitcoin will find strength to hit new highs when it breaks above $55,500 per coin.
We had also forecast, the downward breakout point would be hit should prices fall below $25,000 per coin. If they go that low, bitcoin could well fall back to the $10,000 range.
As we have been noting for over five years, a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations.
We also note, that just as Russia and Ukraine have imposed banking restrictions, so too had Canada with its Prime Minister Justin Trudeau invoking an Emergencies Act on the nation, which froze assets of people who supported the trucker’s Freedom Convoy.
Anything at any time can happen when governments do what they want, when they want, for any reason they want. It is in front of the eyes for all to see how quickly and easily governments can steal the public’s money at any time for any reason.
Thus, you may consider having your money and assets where only you can get them when you want them.
(For more crypto trends and forecasts, please see our TRENDS IN CRYPTOS section.)