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LAST WEEK: U.S. stocks and bonds gave ground.
U.S. equity markets slumped last week amid continuing inflation, uncertainty over the impact of the U.S. Federal Reserve’s looming rise in interest rates, and fallout from the war in Ukraine.
The Dow Jones Industrial Average slipped 0.3 percent, the NASDAQ sank 3.9 percent, and the Standard & Poor’s 500 index shed 1.3 percent, breaking a three-week winning streak.
Despite a gloomy week, stocks rallied from their March lows. The S&P has added 7.6 percent since then, as of 8 April, The Wall Street Journal noted.
Also last week, the 10-year treasury note’s yield jumped to 2.713 percent in its sixth straight day of gains, notching its highest level since March 2019 as investors dumped bonds ahead of another Fed rate hike.
Bond prices fall when investors sell out of them, so yields rise in order to make bonds a more attractive investment.
The two-year note’s yield rose for the fifth consecutive week to close at 2.518 percent, its best five-week stretch since May 1987, the WSJ said.
Rising bond yields could cut into corporate earnings and stock performance, giving some analysts and investors concern that, at some point, market players will dump stocks for bonds, the WSJ noted.
“Although yield levels are still fairly low, if they rise fast enough, can equities withstand such a monetary shock?” Jim Paulsen, chief strategist for Leuthold Group, wrote in a 7 April note to clients.
Stocks still do well with treasury bond yields at 3 percent but begin to falter if yields climb to 4 percent, he said.
“Throughout the week, investors remained preoccupied with commentary from Federal Reserve officials as well as minutes from the central bank’s March policy meeting,” the WSJ reported.
“The Fed has been the number-one story and that continues,” investment manager James Athey at Abrdn [sic] told the WSJ.
“The effect of the sort of tightening that has been discussed…has a history of being very destabilizing,” he said.
The Ukraine war also dragged down equity prices after Western allies alleged Russia had committed war crimes and initiated another layer of sanctions.
Abroad, markets ticked up last week.
Europe’s Stoxx 600 gained 0.6 percent for the week; Britain’s FTSE 100 added 1.7 percent.
The Nikkei 225 edged up 0.36 percent, Hong Kong’s Hang Seng grew by 0.29 percent, and the Shanghai Composite index rose 0.47 percent despite the growing spate of severe COVID-inspired lockdowns across the country (see related story in this issue).
YESTERDAY: On Monday, stock prices continued last week’s slide as investors worried that lockdowns across China, which we detail elsewhere in this issue, will seize up supply chains, continue shortages of materials, and pressurize inflation, The Wall Street Journal said.
Uncertainties over the Ukraine war’s impacts, as well as those of the U.S. Federal Reserve’s more aggressive interest-rate policy, also made investors nervous, the WSJ noted.
The Dow Jones Industrial Average ended the day down 1.2 percent, the NASDAQ slipped 2.2 percent, and the Standard & Poor’s 500 index dropped 1.7 percent.
The S&P’s tech index sank 2.6 percent on Monday, weighed down by the prospect of higher interest rates. Tech stocks typically are valued according to their future earning potential, which can be eroded as interest rates move up.
“China is weighing on people’s minds quite a bit,” Ernesto Ramos, head of integrated equity at Columbia Threadneedle Investments, told the WSJ.
The country’s lockdowns against the COVID virus are “creating all kinds of supply side bottlenecks for the U.S. consumer and for U.S. manufacturers that rely on goods from China for their finished products,” he said.
Investors continued to exit U.S. treasury bonds as tighter monetary policies loom over the Fed. The 10-year treasury note’s yield moved up to 2.779 percent, its highest since January 2019, from 2.713 percent Friday.
Treasury yields, which rise as bond prices fall, have gained in four of the last five weeks.
Bitcoin gave up more than $2,000 in the face of a stronger dollar and higher interest rates ahead, analysts said. The currency registered $39,406 at 4 p.m. U.S. eastern time.
Benchmark Brent crude oil closed Monday at $98.48 a barrel, off 4.18 percent as investors assessed China’s reduced oil demand during its extensive lockdowns.
Overseas, the Europe-wide Stoxx 600 lost 1.6 percent on news of new sanctions against Russia and the Fed’s hawkish outlook, CNBC reported.
In Asia, the CSI 300 index, listing China’s largest mainland stocks, fell 3.09%. The Shanghai Composite dropped 2.61 percent and the Shenzhen Component surrendered 3.67 percent.
The Hang Seng index in Hong Kong sank 3.03 percent, led lower by EV maker Nio after the firm suspended production due to supply chain disruptions caused by widespread lockdowns around the country (see related story in this issue).
China’s producer prices in March grew an unexpected 8.3 percent year over year, disappointing economists polled by Reuters who had expected 7.9 percent.
Chinese consumers paid 1.5 percent more for their purchases in March than a year earlier. The rise also was more than the 1.2 percent forecast by the Reuters’ poll.
The gap between producer and consumer inflation indicates that companies’ margins are being eroded and earnings will suffer, analysts told CNBC.
TODAY: As we noted above, on the bullshit of how CNBC reported the “good” inflation news this morning, the Dow spiked 361 points, while the S&P 500 and Nasdaq climbed 1.3 percent and 2 percent, respectively.
Once reality, a rare element on The Street, set in, the Dow Jones Industrial Average closed down 0.26 percent, or 88.19 points, and the S&P 500 index fell 0.34 percent to finish at 4,397.42. The S&P 500 is down about 6 percent for the year. NASDAQ fell 0.30 percent to finish at 13,371.57.
For The Street, the high inflation numbers added weight to the idea that the Federal Reserve would have to take bolder action through rate hikes. The 10-year Treasury yield hit 2.78 percent on Monday, a three-year high.
TRENDPOST: Peter Schiff, the economist who spoke to Gerald Celente last week, took to Twitter Tuesday to say the yield curve is no longer inverted, the “5s are higher than 2s, 10s are higher than 5s & 30s are higher than 10s, with 30s the only maturity higher on the day. This means investors are pricing in a recession starting sooner and inflation lasting longer.”
OIL: Brent crude jumped 6.37 percent to $104.75 a barrel due to concerns about demand in China, which is taking extreme measures to respond to a COVID-19 outbreak in Shanghai, will ease and their demand for oil will rise, while West Texas Intermediate closed at its lowest level since 25 February.
As we have extensively detailed, the sanctions imposed on Moscow by the United States and NATO following Russia’s invasion of Ukraine is a contributing factor to the surge in oil and gas prices and energy prices which, overall, jumped 11 percent from February.
TREND FORECAST: Before the Ukraine War began, oil prices were rising and inflation cost the average U.S. household an additional $296 per month.
To make a bad situation worse, the U.S./NATO sanctions against Russia will do nothing to stop the Ukraine War. Instead, as we noted since the War began, we have said repeatedly in articles such as “West Paralyzes Russia’s Economy and West’s Economy is Paying the Price” (8 Mar 2022) and “War Scrambles Europe’s Hopes for Economic Recovery” (15 Mar 2022) that sanctions will harm the West and much of the world in the near and long term more than Russia.
South Korea’s Kospi fell 1 percent and Japan’s Nikkei 225 lost 1.8 percent. China’s benchmark Shanghai Composite Index was up 1.46 percent to 3,213.33. Hong Kong’s Hang Seng index edged 0.52 percent higher, finishing the trading day at 21,319.13.
Chinese stocks lost ground as investors watched the COVID situation and subsequent lockdown on the mainland play out. Inflation is also a concern.
The Japanese yen traded at 125.58 per dollar on Tuesday, which was its highest since 2015. Reuters reported that the Bank of Japan has committed to ultra easy monetary policy.
“Given what we’ve seen so far, with the … dollar yen rising from 115 to 125, it’s a very sharp rise in a very short period of time,” Chang Wei Liang, foreign exchange and credit strategist at DBS Bank, told CNBC’s Street Signs Asia. “We think that Japanese authorities are going to be at least verbally trying to intervene in the markets and try to calm sentiment, try not to let the pace of depreciation get completely out of hand.”
BITCOIN: Bitcoin was down 1.08 percent today to $39,593.44. Last week, bitcoin was down about $1,000 from two weeks ago and was trading at $45,885 per coin. Where it is trading now, is in the same range it has been for several weeks.
TREND FORECAST: Bitcoin is showing some weakness, trading in its lower ranges over the last few months. Thus, we maintain our trend forecast that when bitcoin solidly breaks above $55,500 per coin, it will head toward new highs.
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.)
GOLD/SILVER: On the high inflation news, and despite worries of the Fed raising interest rates which lower the opportunity cost of holding gold, gold spiked $20, closing at $1,968.20 per ounce. And silver, which was selling in the $24.40 per ounce range for the past few weeks, jumped by 2.29 percent to close up at $25.56 per ounce today.
TREND FORECAST: It is a simple equation. The higher inflation rises, the higher safe-haven assets gold and silver rise. And, when the Banksters raise interest rates, it will bring down Wall Street and Main Street very hard… and the harder they fall, the higher precious metal prices will rise.
We maintain our forecast, that on the downside, should gold prices fall below $1,850 per ounce, prices can sink down to the low $1,710 per ounce level. For gold to maintain strength prices must stay in the high $1,900 per ounce range and when they solidify above $2,200 per ounce, gold will spike to new highs.
The result of government and Federal Reserve policies is Dragflation: Economies will drag down as inflation spikes higher. Again, the facts are prevalent and cannot be denied… and the U.S./NATO sanctions placed on Russia, as President Biden admitted, will not deter the invasion, but will inflict economic pain around the world.