U.S. stocks are rallying as investors viewed both the Fed’s Minutes as a commitment to only gradual tighten policy to fight inflation and after a few retailers provided optimistic outlooks. The Fed locked itself into delivering a couple half-point rate increases until the Jackson Hole Symposium and that has removed the risk of aggressive tightening in the short term. For some traders, having a strong idea on when the Fed will end its hiking cycle is the key for giving everyone the green light to buy equities and that could happen at the end of the summer.
Earnings
The last several trading sessions saw stock market weakness driven by downbeat outlooks by Target (NYSE:TGT), Walmart (NYSE:WMT) and Snap (NYSE:SNAP), but today that temporarily changed. Macy’s Inc (NYSE:M), Williams-Sonoma (NYSE:WSM) and Dollar General (NYSE:DG) gave reason to be a little bit optimistic about the U.S. consumer. Macy’s raised its full-year EPS guidance and noted that they continued to see strong sales in luxury goods items. Williams-Sonoma noted that this year should meet its long-term financial targets, which comes as no surprise for some as the mid-to-high income households are still handling the current wave of pricing pressures. The standout earnings update came from Dollar General, as it was able to raise their guidance despite ongoing uncertainties arising from product cost inflation and continued pressure in the supply chain. The inflation impact is hitting low income households hardest and Dollar General seems to be benefitting. If Dollar General was cutting guidance, that would be very troubling for betting on the U.S. consumer.
U.S. Data
The latest round of U.S. data delivered a sigh of relief for the labor market as initial jobless claims declined, putting a temporary end to the upward trend. The hot labor market appears to be remaining in place, and that is good news for the economy. The second look at first quarter GDP and personal consumption showed a weaker number for growth and a boost for consumer spending.
Oil
Crude prices rose as a tight oil market was going to remain in place given the start of the summer driving season was going to keep a downward trajectory for U.S. stockpiles. The EU is struggling to get Hungary on board for the required unanimous support needed for a ban on Russian oil. It still seems possible for the ban to get pushed through, but Hungary will need to have favorable terms.
The gains for crude were limited as China’s Premier Li Keqiang delivered a downbeat outlook given the current struggles with COVID. The crude demand outlook has a lot of uncertainty from China, but the U.S. is still looking good. The latest round of U.S. data suggest the economy is decelerating, but the consumer is still spending and probably will be travelling a lot this summer. Personal consumption rose more than expected and jobless claims improved, which counters calls that the labor market was weakening.
Until a major update occurs with either the EU proposed ban on Russian oil or China’s COVID lockdown situation, WtI crude looks like it wants to take a nap between $109 and $112 range.
Gold
Gold prices edged lower as risk appetite attempted a return to stocks following solid retail earnings outlooks, damaging demand for safe-havens. Gold has been supported on expectations that the Fed won’t be as aggressive with tightening monetary policy as some had feared. Gold traders are looking to see if the near two-week dollar pullback is over. A peak in Treasury yields has been put in place, but it seems unlikely that the 10-year Treasury yield will significantly weaken from here.
Wall Street will wait to see what happens with inflation over the next couple of months and that could mean that gold might be ready for a short-term consolidation phase, with the $1839 providing initial support and $1870 being the ceiling.
Crytpo
Bearish sentiment remains the theme for cryptos as Bitcoin edged lower despite a modest rebound with risky assets. Ethereum is selling off as many crypto traders start to doubt Ethereum 2 will be successful. Ethereum 2 merge was delayed until August, but it won’t truly let Ethereum be scaled up, they will use a multi-chain system and will connect to a wrath of Layer 2 scaling solutions. Ethereum has too many competitors that can do a better job of scaling up and this latest update might force people to jump ship.
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