Overnight Activity:
Escalation turns into de-escalation
Reports of explosions in Iran – and in particular close to one of its nuclear facilities in Isfahan – and that Israel was in the process of a retaliatory attack against Iran last night roiled markets.
- S&P futures plunged (off 85 to 4964), while investors bid up safe haven assets
- US bonds rallied, with the 2yr yield down from 4.99% – 4.877%, and the US 10yr yield down from 4.649% to 4.494%
- The yen surged over a handle (154.68 – 153.59), which overcame a lighter reading on Japan’s Core Inflation YoY (2.6% vs exp 2.7%, 2.8% last, won’t push the BOJ to hike rates soon)
- the dollar also gained (DX from 106.16 – 106.35)
- Oil rallied sharply from $82.50 – $86.28.
- Gold spiked higher, tripping buying over $2393-98 (last 4 sessions’ highs), and $2400 to reach $2418 – but the advance fell short of the 4/12 $2432 ATH.
Later in the evening, markets reversed on news that the strikes were very limited, with Iranian officials claiming its air defenses intercepted three drones close to an airbase in Isfahan, and satellite imagery showed minimal damage at the base. The restrained attack was viewed as more of a signal by the Israelis and actually a de-escalating of the conflict / tensions.
- S&P futures rallied back into positive territory (+6 to 5056), led by gains in Paramount (rumors of being acquired by Sony and Apollo), KB Home (announced share buyback plan), Shopify (upgrade by MS), and First Solar (upgrade by Wells Fargo) overcame losses at Netflix (no longer reporting quarterly subscriber gains)
- Bond yields moved back higher, with the US 2yr up to 4.977%, and the US 10yr up to 4.612%, both a few bp lower than yday’s finishes
- the yen retreated to 154.58
- The dollar slipped back to 105.99, also weighed by:
- a firmer euro ($1.0610 – $106.70)
- from stronger German PPI MoM reading (0.2% vs exp 0%, -0.4% last)
- firmer pound ($1.2389 – $1.2468)
- from a better UK Retail Sales YoY (0.8 vs -0.3% last)
- However, a decline in the yuan (7.2386 – 7.2421) was dollar supportive
- Another large miss on China’s Foreign Direct Investment (-26.1% vs -19.9% last, further de-coupling / de-risking)
- Oil slumped back to $81.83
- Gold tumbled back under the key former resistance levels that contributed to the surge ($2400, $2393-98), and yesterday’s close to reach $2373, where support over the last three sessions has proved firm
NY Time
A lack of US Economic Reports left the whipsawed markets lacking near term direction. However, some hawkish commentary from the typically more dovish Fed’s Austan Goolsbee – added to the recent litany of hawkish Fedspeak:
- Progress on US inflation has stalled.
- Makes sense to wait to get more clarity before moving on rates
- Feds current restrictive monetary policy is appropriate
- Proper Fed policy going forward, will depend on the data.
- Still helpful for return to improvement on inflation in months ahead
- Persistently high housing inflation is made short one problem.
- These more space for progress on services inflation from labor supply increases.
- Need to determine if a strong GDP, jobs numbers are a sign of overheating that is driving up inflation.
Bond yields climbed moderately higher off the Goolsbee comments with the US 2yr up to 4.988%, and the US 10yr to 4.632%, both back near 5-mo highs. Stock softened (S&P off 44 to 4966), as losses at Netflix (off 8%) and tech names (Nvidia off 6%, Super Micro Computer off 20%) led the IT and Communications Sectors lower. The DX recovered back over 106 to reach 106.22. Gold bounced around near its ovn low ($2373) for the rest of the morning, but failed to move lower – with dip buying in this $2365-$2370 area seen over the last three sessions proving firm. It moved higher into the afternoon – despite the higher bond yields and dollar – briefly taking out $2400 to reach $2402 before pulling back to trade either side of $2395.
Technicals
Support:
$2355-63 (4/16, 4/17, 4/18 lows), $2350 (options), $2320-26 (4/10, 4/11 lows, options), $2300-03 (4/8 low, options), $2266-67(4/3, 4/5 lows), $2247-50 (4/2 low, options), $2208 (50% retracement of up move from 2/14 $1984 low to 4/12 $2432 ATH), $2229 (4/1 low), $2187 (3/28 low), $2174-75 (3/27 low, options, $2157-68 (3/22, 3/25, 3/26 lows, $2146-50 (3/18, 3/19, 3/20 lows)
Resistance:
$2393-2400 (4/16, 4/17, 4/18 highs, options), $2418-25 (4/19 high, options), $2432 (4/12 ATH)
Remains Overbought:
After rallying $211 (10.6%) from its 2/14 $1984 low to $2195 on 3/8, and $160 from 2/28-3/8, gold’s 14-day RSI shot to a white hot 85 – a level it hasn’t seen since March 2022 (Russian invasion). After a pullback over the subsequent 7 sessions to the 67 – 70 level, it surged back up to an overbought 75 on the rally to the $2222. After another dip to $2157 on 3/22, the market surged $275 to a fresh ATH at $2432 by putting in 13/14 sessions of new highs. This took the14-day RSI back to the white hot overbought level of 85. Despite Friday’s blow off top price action (rally to ATH $2432 was followed by a $100 pullback), the market has surged back to flirt with $2400, and is still reading overbought at 72.
FedWatch:
Recent stronger US Economic Data, including the most recent robust US Payroll Report, hotter CPI, and stronger Retail Sales have combined with a generally more hawkish narrative from recent Fed Speakers, including Chair Powell on Wed, to push back on the rapid and deep rate cut narrative that was prevalent just a couple of months ago. The door is essentially shut on the Fed beginning to cut rates in June (prob down to under 20%), and July (45%), and now expect them to begin in Sep (67.3%). Additionally, markets also reduced their expectation of cuts from 3 to 2 for the remainder of the year.
FF Probabilities:
May: 4% prob of cut to 5% or below
June: 16.9% prob of cut to 5% or below
July: 44.8% chance of cut to 5% or below
Sep: 67.3% prob of cut to 5% or lower
Nov: 32.5% prob of cut to 4.75% or lower
Dec ’24: 50.5% prob of a cut to 4.75%, or lower, only 17.9% chance of a cut to 4.5% or lower, reflecting expectations of only two 25bp cuts by yr end.
This compares to the most recent FOMC Dot Plot where 10 members are looking for 3 cuts to 4.5%, and 9 members are expecting 2 25bp cuts to 4.75%
Market Positioning
Last Friday’s CFTC’s COT Report as of 4/9 showed the large funds trimming 1.6k contracts of longs and adding 3.2k contracts of shorts to surprisingly reduce the Net Fund Long Position by 4.8k contracts to 202.4k contracts. This was done on gold’s sharp rally from $2280 on 4/2 – $2352 on 4/9. Since then, this position is out at least 10-15k contracts on gold’s rally to $2432. At well over 200k contracts, this position is significantly large, and will be a significant bearish factor going forward.
GLD holdings:
After reaching 883 tonnes on 11/17/23, holdings became surprisingly steady / lower, sliding to just 815 tonnes on 3/12 – its lowest level since July 2019. This is despite gold’s $200+ move ($1980 – $2080) during that period. Though gold has rallied another $350+ since then, GLD holdings have only increased by around 15 tonnes to 825-30 tonnes (828 tonnes last). This continues to reflect a fair amount of profit taking from GLD longs into the rally, along with some diversification of AI assets into bitcoin ETFs (Bitcoin continues to surge, trading either side of $70k). This level for GLD holdings remains toward the lower end of the 730 tonne low in mid-2018, and 1350 tonne high from 12/2012, and can be viewed as a modest bullish factor going fwd.
Reports / Events:
Q1 Earnings Season
Today: US COT
Mon: China’s Loan Prime Rates, US Chi Fed National Activity Index, Consumer Confidence
Tues: Japan’s Jibun Bank Man PMI, German Man PMI, Eurozone Man PMI, UK Man PMI, US Building Permits, Redbook Sales, Man PMI, New Home Salse, Richmond Fed Index, 2 year note auction, API Oil Inventory
Wed: German IFO Business Climate, US Durable Goods, EIA Oil Inventories
Thurs: Japan’s Leading Index, Coincident Index, German GfK Consumer Confidence, US Q1GDP, Jobless Claims, Wholesale Inventories, Pending Home Sales, KC Fed Index
Fri: Japan’s BOJ Interest Rate Decision, US PCE, Personal Income, Personal Spending, University of Michigan Consumer Sentiment, COT
Gold 4/19/24
by Jim Pogoda
Senior Trader / Analyst
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