After what might be the worst first six months of the trading year for the S&P 500 since the 1970s, US stocks were ready to turn positive over the slightest hint that the Fed may change their aggressive tightening course. Equities rallied after Powell said the Fed will need to be nimble in responding to incoming data and the evolving outlook. The stock market rally faded as Fed Chair Powell acknowledged that they need to do their job and get inflation back down and that it is a possibility that they could send the economy into a recession. Powell can’t remain upbeat on the economy and his comment that it will be very challenging to achieve a soft landing speaks to that.
The headlines on Wall Street were mixed today as some companies reported strong earnings results, Revlon filed for Chapter 11 bankruptcy, JPMorgan announced layoffs in the mortgage business, and as the US FDA is preparing to order Juul to remove e-cigarettes off the US market.
Fading stock market bounces will still remain the go-to trade on Wall Street until the economic data dramatically weakens and the Fed pivots so that they may ease up their tightening of policy strategy. The Fed is starting to become a little more pessimistic as they are finally acknowledging it will be ‘very challenging’ to achieve a soft landing, but nowhere near enough for traders to expect a pivot over tightening anytime soon.
Canadian CPI soars
Inflation stays hot in Canada, surging to the fastest pace since January 1983. This inflation report was much hotter-than-expected as food and energy prices surged from 13.9% to 16.4%. With headline and core inflation showing no signs of easing, the BOC will remain aggressive with tightening policy and will most likely send interest rates to 3.50% by the end of the year.
Bitcoin remains a shadow to US stocks and pared losses after Fed Chair Powell pledged to be nimble, prompting traders to believe they might not be too aggressive with tightening once they believe the economy has significantly weakened.
The global crypto market remains vulnerable to further selling pressure, but a consolidation could be around the corner as the challenging macro environment is close to being fully priced in.
Sentiment for cryptos remains at depressed levels, but the selling momentum is showing signs of exhaustion. A USD 500 million outflow from North America’s first Bitcoin ETF could be the capitulation that is needed to form a short-term base for Bitcoin.
Bitcoin won’t have a solid bottom in place until we see stocks make a strong comeback from bear market territory.