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Commodities and Cryptos: Oil rebounds, Gold slides, Bitcoin sinks

Oil Crude prices are rising on optimism Chinese demand is improving and that sweeping legislation could keep the oil market tight.  The energy market…

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This article was originally published by Market Pulse

Oil

Crude prices are rising on optimism Chinese demand is improving and that sweeping legislation could keep the oil market tight.  The energy market is still digesting the Chinese crude intervention news and trying to figure out if the Biden/Xi call will lead to a more positive environment for risk appetite. 

The crude supply outlook might keep the oil market tight as the House tries to deliver sweeping legislation that could cripple offshore drilling.  While the House might support the legislation to address climate change, the Senate’s conservative democrats might balk at the bill.

Reports that OPEC will revise lower its 2022 oil demand growth forecast next Monday is why today’s rally ran out of steam. 

WTI crude continues to respect the $70 level, but bullish momentum might not be too far away given the improving fundamental drivers. 

Gold

Gold prices declined after US producer prices accelerated in August, sending Treasury yields sharply higher.  Gold isn’t acting like an inflation hedge at the moment and will struggle to get its groove back until pricing pressures trigger risk aversion and boost demand for safe-havens.  Gold needs to see strong demand for Treasuries send yields back down before investors get behind bullion again. 

Gold’s struggles could extend into next week if the yield curve continues to steepen.  Initial support remains the $1750 level, with $1700 likely being a level that would attract many long-term bets. 

Bitcoin 

Bitcoin volatility will likely remain elevated as further regulatory oversight appears to be just around the corner.  The Fed is expected to unveil a research paper this summer that explores a move to a central bank digital currency.  The heavily anticipated Fed research paper could show how the Fed anticipates regulation to deliver a safer environment for the public in using cryptos and how to make payment systems more efficient.  The SEC might also deliver new guidelines that could disrupt how crypto lenders behave and which products they can offer. Bitcoin prices are attempting to form a base after a crash was triggered on the first day El Salvador made it legal tender.  If the floor gives, panic selling could lead to another massive drop.

Economics

US Meat Prices To Remain Elevated Amid Depleted Reserves

US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic…

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US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic lows and could continue to support higher prices. 

New United States Department of Agriculture (USDA) data shows beef reserves dropped 7.7% from a year ago in August, poultry supplies fell 20%, and pork plunged 44% to their lowest levels since 2017, according to Bloomberg

Jim Sullivan, commercial director for Stable USA, said low meat inventories would suggest meat prices will stay elevated. 

"Prices remain very elevated compared to seasonal expectations," Sullivan said. 

Soaring supermarket prices have been on the radar of the Biden administration as working-poor families allocate a high percentage of their incomes to basic and essential items. Higher food inflation eats away their wages and is why Biden recently increased SNAP benefits by a quarter

Earlier this month, the Biden administration finally addressed inflation as a concern but didn't blame the trillions of dollars in fiscal and monetary policies and labor shortages on increased food inflation but instead placed responsibility on meatpackers. 

White House National Economic Council Director Brian Deese said "pandemic profiteering" food companies are driving up supermarket costs for Americans. This is nothing more than a blame game and failed government policies that have not just increased food prices but have left supply chains reeling due to stimulus checks that disincentivized workers from working. 

New data of low meat supply at US cold storage facility is more bad news for the Biden administration, who will have to develop a new narrative about why meat prices aren't going down. If food inflation remains elevated into early next year, Americans might vote with their wallets during next year's midterms. 

Tyler Durden Thu, 09/23/2021 - 20:00
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Economics

Where Do Monetarists Think the PCE Price Level Is Going To?

From an email from Tim Congdon, at the International Institute for Monetary Research (9/20): I suggest that a more plausible figure for end-year PCE annual…

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From an email from Tim Congdon, at the International Institute for Monetary Research (9/20):

I suggest that a more plausible figure for end-year PCE annual inflation is between 5½% and 6%. (The consumer price index – up by 4.5% in the first seven months of 2021 – may finish the year with a rise somewhere in the 6½% – 7½% area.)

The conclusion is based on the following reasoning:

In the background here is the huge overhang of excess money balances. In the year to mid-May 2021 the M3 measure of broad money increased by 35%. The evidence over many decades is that – in the medium term – the growth rates of money, broadly-defined, and nominal gross domestic product are similar. So – unless that 35% number is now followed by a big contraction in the quantity of money – the US economy will continue to be affected by two conditions, specifically,

• ‘too much money chasing too few assets’, and
• ‘too much money chasing too few goods and services’.

Of course the two conditions are interrelated and also interact with each other. Our research emphasized last year that rapid money growth was likely to boost asset prices first, and that has been right. (Incidentally, to attribute the behaviour of the prices of US tech stocks to bottlenecks and supply shortages would be daft. Does one have to say these things?)

What’s the implied path of the PCE deflator, relative to nowcasts and forecasts? See Figure 1, where I’ve used the mid-point of Congdon’s forecast (5.75% December y/y), shown as the red square.

Figure 1: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), Survey of Professional Forecasters August median forecast (green line), FOMC 9/22 projections (blue square). Source: BEA, Cleveland Fed, Philadelphia Fed/SPF, Federal Reserve, and author’s calculations.

The FOMC median forecast is surprisingly similar to the Survey of Professional Forecasters’ median forecast from the preceding month (mid-August). The FOMC members then still perceive a deceleration in inflation in the last half of 2021.

Congdon’s forecast looks plausible given the August PCE deflator nowcast (and even more using the September). However, it’s far outside of the range projected by the FOMC, as shown in Figure 2, which includes the high/low inflation forecasts.

Figure 2: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), FOMC 9/22 projections (blue square), high and low forecasts (dark blue +). Source: BEA, Cleveland Fed, Federal Reserve, and author’s calculations.

In other words, the monetarist view (if I can use Congdon’s view as a proxy) differs from both a mixed bag of mainly mainstream economists (proxied by the Survey of Professional Forecasters) and policymakers (the FOMC).

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Economics

US stocks march on, lifted by business optimism

Benchmark US indices closed higher for the second consecutive day on Thursday September 23 lifted by positive sentiments from Fed s economic outlook…

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Benchmark US indices closed higher for the second consecutive day on Thursday, September 23, lifted by positive sentiments from Fed’s economic outlook.

The S&P 500 was up 1.21% to 4,448.98. The Dow Jones rose 1.48% to 34,764.82. The NASDAQ Composite rose 1.04% to 15,052.24, and the small-cap Russell 2000 was up 1.82% to 2,259.04.

Traders ignored the weak unemployment data released by the Labor Department on Thursday, which showed new jobless benefits claims rose by 16,000 to 351,000 in the week ended Sep 18.

Economists consider the rise in benefits claims to be because of Hurricane Ida and forest fires and not due to flawed policy action. On Wednesday, the Fed said that it might start withdrawing stimulus support from November. The statement raised confidence in the economic recovery.

Financial stocks were among the top movers on S&P 500 Thursday, while energy and real estate stocks declined. Stocks of BlackBerry Limited (BB) rose 12.08% a day after reporting quarterly results. Its revenue rose to US$175 million in Q2, FY21, from US$174 million in the year-ago quarter.

Accenture plc (ACN) stock jumped 2.63% after reporting its fourth-quarter results. Its net income was up US$1.43 billion from US$1.30 billion in the same quarter of the previous year.

Salesforce.com, Inc. (CRM) stock rallied 7.38% after it raised the full-year revenue guidance. It expects its FY 2022 revenue to be US$26.35 billion, up from its earlier forecast of US$26.3 billion.

In the energy sector, Exxon Mobil Corporation (XOM) rose 3.58%, Chevron Corporation (CVX) gained 2.51%, and ConocoPhillips (COP) gained 2.45%. Kinder Morgan, Inc. (KMI) and EOG Resources, Inc. (EOG) advanced 2.51% and 2.76%, respectively.

In the consumer discretionary sector, Nike, Inc. (NKE) increased by 1.26%, Starbucks Corporation (SBUX) gained 1.25%, and General Motors Company (GM) rose 2.24%. Ross Stores, Inc. (ROST) and Hilton Worldwide Holdings Inc. (HLT) ticked up 1.62% and 4.30%, respectively.

In financial stocks, Berkshire Hathaway Inc. (BRK-B) rose 1.65%, JPMorgan Chase & Co. (JPM) jumped 3.35%, and Bank of America Corporation (BAC) rose 3.79%. Wells Fargo & Company (WFC) and Morgan Stanley (MS) jumped 1.58% and 2.86%, respectively.

Also Read: Top five communication stocks that rode the Q2 rebound

Also Read: ONTX stock dives 16%, DVAX stock in green after clinical data

US stock indices closed higher on Sep 23 on positive economic outlook.

Also Read: Crypto exchanges Binance vs Kraken: Where would you like to trade?

Futures & Commodities

Gold futures were down 2.05% to US$1,742.40 per ounce. Silver decreased by 1.71% to US$22.515 per ounce, while copper fell 0.48% to US$4.2317.

Brent oil futures increased by 1.38% to US$77.24 per barrel and WTI crude was up 1.37% to US$73.22.

Bond Market

The 30-year Treasury bond yields was up 5.04% to 1.941, while the 10-year bond yields rose 7.71% to 1.434.

US Dollar Futures Index decreased by 0.39% to US$93.100.

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