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U.S. STOCKS CONTINUE RECOVERY
LAST WEEK: U.S. equity markets gained for a second consecutive week as investors grew confident that the American economy will weather the Ukraine war and the Federal Reserve’s rising interest rates, The Wall Street Journal reported.
The Dow Jones Industrial Average edged up 0.3 percent on the week. The NASDAQ added 2 percent, extending its gain to 10 percent over two weeks. The Standard & Poor’s 500 index gained 1.2 percent and has climbed 1.8 percent in two weeks.
However, bond prices slumped on expectations that the U.S. Federal Reserve is increasingly likely to raise its benchmark interest rate by a half-point at its next meeting and perhaps subsequent sessions as well, according to a growing number of economists.
Higher interest rates reduce bond prices.
The yield on the benchmark 10-year treasury note rose on Friday to a near-three-year high of 2.491 percent.
Yields on three- and five-year notes closed last week above 2.5 percent, a signal that traders expect the Fed to peg interest rates as high as 3 percent next year.
Because stock markets seem to be withstanding the Fed’s quarter-point rate hike this month, the central bank might be more confident in raising the rate by a half-point next, the WSJ said.
Abroad, Europe’s Stoxx 600 advanced 0.3 percent and the Nikkei 225 managed a 0.1-percent gain.
The Shanghai Composite index was off 1.3 percent and the Hang Seng index in Hong Kong dropped 2.5 percent. Chinese share prices fell after U.S. regulators said they were still considering delisting some Chinese stocks.
Yet, on a Chinese up note, its National Bureau of Statistics reported that industrial profits increased 5 percent in the January-February period. But that was last week. Now with the Shanghai rolling lockdown, its economic growth will be temporarily slowed.
After being closed for a month, Russia’s stock market reopened with limited hours and only 33 stocks allowed to trade. Foreign shareholders were barred from taking part.
The market shot up 4.4 percent on its opening day but gave up 3.7 percent for the week. Share prices for Gazprom, the state-controlled natural gas company, shed 12 percent; Sberbank, the country’s largest lender, saw its stock price shrink 3.5 percent.
MONDAY, 28 MARCH: Stocks battled their way to another day of gains after sinking mid-day.
The Dow Jones Industrial Average managed a gain of 0.3 percent. The NASDAQ was up 1.3 percent and the Standard & Poor’s 500 index grew by 0.7 percent.
Consumer discretionary product companies saw their share prices rise, as did tech and real estate businesses.
Oil share prices continued to weaken after Shanghai mandated a stringent anti-COVID lockdown, curbing short-term energy demand in China. Brent crude closed down 6.8 percent on the day to $112.48 a barrel; the S&P’s energy sector lost 2.6 percent.
Bitcoin continued its rebound for a fifth straight day, adding 4.1 percent from Sunday through Monday to $47,944.16.
Gold backed off 1.8 percent to end Monday’s trading at $1,923 per ounce.
Elsewhere, Europe’s Stoxx 600 scraped out a 0.1-percent gain, while the Nikkei 225 gave up 0.7 percent, with the yen down 1.2 percent against the dollar after Japan’s central bank kept a cap on yields.
The Shanghai Composite index gained 0.1 percent, the Hang Seng rose 1.3 percent, and South Korea’s Kospi ended the day flat.
TODAY: With Ukraine peace talks making the news, European stocks closed higher with the Stoxx 600 jumping up 1.7 percent. Earlier trading in Asia-Pacific, before the announcement of possible positive peace talks, stocks mostly rose, following a sharp drop in oil prices overnight. Hong Kong’s Hang Seng index was up nearly 1 percent, Shanghai composite slipped down 0.33 percent and Japan’s Topix closed up 0.93 percent and its Nikkei 225 closed up 1.10 percent.
However, the big story on the Japanese market front is its yen, which is hovering at a six year low. Yesterday, the Bank of Japan said it would buy unlimited amounts of 10-year JGBs at 0.25% for the first four days of this week.
With the yen going down, today, its Finance Minister Shunichi Suzuki said Japan will closely monitor foreign exchange moves to avoid “bad yen weakening.”
What is bringing the yen down is the BOJ’s announcement that it would continue to hold short-term interest rates at -0.1 percent and the yield on the government’s 10-year bond at zero, compared with the 2-plus-percent return on the U.S. 10-year bond.
Soaring commodity prices might temporarily push inflation in Japan above 2 percent later this year, the bank’s governor Haruhiko Kuroda said in a statement several days ago, but that “doesn’t mean we have achieved our inflation target” and “does not suggest the need to change the current monetary policy.”
However, across much of the globe, with inflation rapidly rising, central banks are pushing interest rates higher. For example, recently, the Bank of England has just announced its third interest rate increase since November and the U.S. Federal Reserve raised its key rate for the first time in almost four years.
TREND FORECAST: While inflation is still moderately low in Japan compared to other nations, as we have noted, should the Ukraine War escalate and more sanctions be placed on Russia, and/or military conflict breaks out between Israel and Iran and oil prices spike, energy dependent Japan’s inflation numbers will soar, forcing the BOJ to raise interest rates.
In the U.S.—picking up where the European markets left off with their rise following the news of positive peace talk movements between Russia and Ukraine—equities continued their four day winning streak with the Dow jumping more than 300 points, the Nasdaq climbed 1.8 percent higher and the S&P 500 rose 1.3 percent.
OIL: Today, Brent Crude is trading at $110.59 per barrel and West Texas Intermediate at 104.79 per barrel. Last week at this time they were at 115.48 and $111.76 respectively. What’s keeping oil prices in the new so-called “low range” is China’s latest fight to win the COVID War by putting its largest city, Shanghai in a major rolling lockdown… plus peace talk hopes between Russia and Ukraine.
TREND FORECAST: Yet, even at these levels, oil prices are at 2014 highs and gas prices are sapping the pocket books of consumers and the transportation industry. If there is a Ukraine/Russia peace agreement and sanctions are lifted from Russia, plus if a deal is made with Iran to let them back into the oil market, prices will continue to decline.
GOLD/SILVER: Last week, 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 were trading a bit up from the previous week’s close.
Today, after moving up a bit at the end of last week, gold prices fell more than 1 percent to a one-month low as signs of Russia-Ukraine peace talk progress sunk demand for safe-haven assets.
Today, gold was down nearly $22 per ounce and silver fell over 1 percent, but both precious metals were selling for about the same prices as last week with gold closing at $1920.00 per ounce and silver at $24.74 per ounce.
TREND FORECAST: With inflation at its highest levels in 40 years and sanctions on Russia driving inflation yet higher… and longer, unless the sanctions are removed, we maintain our forecast for stable and rising precious metals prices.
Also, should tensions increase between Israel and Iran, and the Yemen War escalate and spread into Saudi Arabia, it will drive up both precious metals and oil prices.
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.
On the downside, should gold prices fall below $1,850 per ounce, they can sink down to the low $1,700 per ounce level. For gold to maintain strength and move higher, prices must solidify above $2,200 per ounce.
BITCOIN: According to an article from Coindesk yesterday, the recent Bitcoin spike, as noted by Singapore’s QCP Capital, is due to the broader rally in global asset prices, and this “bullish momentum” is likely to continue in the near term.
TREND FORECAST: Complementing QCP Capital’s assessment of why crypto’s are moving higher, last week we noted that Bitcoin hit a three-week high as the broad range of cryptocurrencies moved up along with stock indexes.
Therefore, we maintain our forecast that bitcoin will find strength to hit new highs when it breaks above $55,500 per coin.
We 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.
(For more crypto trends and forecasts, please see our TRENDS IN CRYPTOS section.)