Stocks, cryptos and metal plunge

Investors are finding it difficult to justify buying stocks, cryptos and other risk-sensitive assets. This is evidenced by repeated failures to hold onto gains in stocks and indices. Whatever opportunity investors get to make profit, they take it. And why wouldn’t they, given everything that’s happening in the world right now. The economic outlook remains grim. Inflation may have eased a little bit; it is still far too high and may remain elevated for longer than expected.

That’s precisely what happened again today. US futures had rallied into the close late last night, but since the Asian open, we have seen the markets drift back lower to the point where US indices had given up the entire gains made the day before. When Wall Street opened, we again saw a pop in risk assets before the inevitable dump that saw the indices hit new lows on the week. We also saw gold hit a new low for the year sub $1680 as rising interest rate expectations continue to weigh on zero-yielding assets. The Nasdaq looks poised to head even lower from here:

Today’s US data dump did little to change the market’s view of what the Fed might do next week. Investors are confident the US central bank will tighten monetary policy by 75 basis points on Wednesday, something which could push the economy into slowdown and cause earnings to decline.

In an environment of rising interest rates around the world, traders continue to prefer selling into assets that have little or no yield, such as low-div stocks and gold.

Going forward, it is all about when the interest rate hikes are fully priced. Until this happens, it is unlikely that the stock market will be able to shine very brightly. How quick the markets will price in rate hikes depends pretty much on incoming data, especially inflation figures. On Tuesday, we found out that US inflation remained hotter than expected and this led to a quick repricing of even aggressive interest rate hikes from the Fed.

US stocks and bonds thus remain undermined for now until there’s evidence of inflation coming down sharply. Perhaps prices could come down in the event of a sharp economic downturn, causing demand to weaken. For that reason, other macroeconomic pointers will also be important to watch closely. In a way, bad news might actually be good news for stocks as investors might interpret that as reasons why inflation might fall back and hasten the potential interest rate cuts from the Fed to support an ailing economy.

This is precisely why the dollar weakened a little and stocks rose last week, but as we have seen on several occasions, inflation data and the Fed have repeatedly delivered hawkish surprises. So, don’t read too much into any odd weakness in non-inflation data.