US Close: Wall of Worry sinks stocks, Short-term Oil fundamentals turn bearish, Gold
The wall of worry just got too high for US stocks. Despite another optimistic study for the Pfizer COVID vaccine, the current surge is starting to see hospitalizations rise across some heavily vaccinated states. NY Governor Hochul announced that NY COVID hospitalizations have jumped over 70% since Thanksgiving. Restrictive measures may be temporary, but the short-term outlook was already starting to look very vulnerable given widespread pricing pressures.
The biggest worry for investors still remains that of a policy mistake by the Fed and that answer won’t happen until after the FOMC decision and presser. The hottest annual pace on record for producer prices was another reason why some traders are expecting the Fed to deliver more hawkish rhetoric. Every sector was lower except for Financials as they have benefited from the steadying of Treasury yields.
Crude prices got punished as COVID continues to disrupt the short-term crude demand outlook and after the EIA noted the global oil market has returned to surplus. The Thanksgiving surge has triggered rising COVID cases across the country and that could threaten many holiday plans for the rest of the year.
The weekly API oil inventory report showed a 0.8 million barrel draw, which was less than 3.1 million decline seen last week and not as big as the 1.6 million consensus estimate for the EIA headline crude oil inventory forecast.
The next big move for oil prices might happen after the Fed policy decision that could show a hawkish dot plot that sends the dollar rallying, which will drag down all commodities. The longer-term supply fundamentals should support higher oil prices, so whatever downside we see over the next 48 hours could be limited as long hospitalizations don’t get out of control in the US.
Gold did not stand a chance after US producer prices climbed sharply in November. Inflation is running too hot for gold to attract investors. Price pressures will persist and that will likely force many Fed members in signaling more rate hikes than they were initially thinking.
Gold continues to slide lower, near 3-month lows ahead of the big Fed meeting. Some investors are adding dovish Fed hedges, but that is hardly the consensus on Wall Street. Earlier Fed rate hike expectations could have gold vulnerable towards the $1750 level.
Cryptos The Senate Banking Committee’s stablecoin hearing showed regulation is coming. This was an easy decision in the summer for USDC as pressure mounted for them to support a 1:1 backing with US cash or equivalents. Clarity is coming for stablecoins and that remains short-term negative but ultimately long-term positive for the entire crypto space.
While most cryptos have been selling off due to the biggest-ever annual jump in producer prices have investors nervous the Fed may turn full hawk at tomorrow’s policy meeting, Dogecoin is surging after Elon Musk tweeted, “Tesla will make some merch buyable with Doge & see how it goes.” Musk has always backed Dogecoin, and his latest tweet reinvigorated many dormant traders. Dogecoin rallied over 19% to $0.1896.
Many crypto traders are focusing on which altcoins to bet big on and Musk’s tweet served as a reminder that you can’t forget about Doge as some businesses remain committed to using it.
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