Global bond yields fall as stocks rebound

US equities breathed a tentative sigh of relief now that the bond market sell-off appears to be taking a breather. In just a few weeks, Wall Street has gone from a policy of gradual price tightening to a hasty offensive that could result in 4-5 rate hikes this year and a kickoff to balance sheet reduction this spring. Fed tightening expectations have been exaggerated and investors are now turning to risky assets.

Investors quickly shrugged off a rather warm initial report on jobless claims that hit its highest level since October. Unemployment claims filings rose by 55,000 to 286,000, well above the expected forecast of 225,000. Holiday and covid shutdowns were in play and likely impacted the elevated unemployment claims reading.

The booming real estate market suffered a rare setback with existing home sales as record high inventory and soaring mortgage rates led to a slowdown in purchases. Not the best for the housing market as some seasonal factors and Omicron likely weighed on the decline in home sales. For the full year, sales reached 6.12 million, an increase of 8.5% over 2020, which was the best year since 2006. The housing market is not slowing down yet, it could happen after some Fed rate hikes.

Oil

Crude prices initially shrugged off a mostly bearish EIA Crude Oil Inventory report. Shortly after the release of the Weekly Oil Report, Russia’s Energy Ministry noted that refiners continue to struggle with minimal crude capacity offline. The oil market remains very tight and despite the surprise construction of the EIA with crude oil inventories and higher than expected gasoline production, crude prices are poised to rise.

The EIA report showed that US production remained stable at 11.7 million barrels per day. Mainline production of 515,000 barrels per day was the first increase in eight weeks, a big miss from the expected drawdown of 1.3 million. Jet fuel inventories remain near record highs. Omicron has dampened gasoline exports, sending them to the lowest levels since June 2020. Demand is moderating, but seasonal factors are at play.

Brent Crude was fifty cents lower than the $90 level and that could hold unless a new catalyst emerges. Oil prices are generally expected to rise, but catalysts will be needed to break above key psychological levels.

Gold

Gold is slowly regaining its momentum as Treasury yields continue to fall from recent highs. Gold didn’t do much today as demand for safe havens was weak as stocks rebounded. Lower jobless claims and existing home sales data helped lower rates, but the focus today was mostly on anger over strong results.

A big wild card for gold is what will happen with Russian-Ukrainian tensions, but the risks are growing and a small-scale attack could occur. Geopolitical risks and soaring global inflation should continue to provide underlying support for gold going forward. Gold’s next upside target includes the $1,880 level, followed by the $1,900 psychological level.

Bitcoin

Bitcoin lost earlier gains after Russia’s central bank proposed banning the use and mining of cryptocurrencies on Russian territory, saying digital currency poses a risk to Russia’s financial stability and sovereignty. Monetary Policy. The Russian ruble has steadily fallen over the past two decades, which has made Bitcoin an attractive investment for many Russians in recent years. Russia was one of the top three countries for Bitcoin mining, so if this proposal passes, Bitcoin could slide below the $40,000 level.

Cryptos remain the forever risky asset and if Treasury yields continue to fall, that should be good news for Bitcoin.

Garland K. Long