European stocks continued their recovery on Tuesday, although that momentum was lost heading into the close as they gave back a portion of their gains. The US, meanwhile, is seeing large losses on the back of a couple of days of yields rising and some disappointing economic data. The CB consumer confidence reading was a blow, with the expectations component suffering a particularly large drop which doesn't bode well given how resilient spending has been until now. While the labour market remains in a very good position, areas of weakness are appearing in the economy - such as the property market - and perhaps consumer spending will be next. This would be a massive setback and potentially the strongest signal yet that the US is heading for a recession. Stocks had been given a boost earlier by a relaxing of quarantine restrictions in China that may be the first move towards a softening of its zero-Covid policy. Perhaps investors are getting carried away with a very modest easing of restrictions but the policy is a big potential headwind for the global economy so any loosening will be celebrated. Of course, these are extremely anxious times in the markets so the celebrations didn't last very long. And that will be even more evident from tomorrow when the economic data ramps up and we hear from the heads of the Fed, ECB and BoE at the Forum on Central Banking in Portugal. Oil rallies as OPEC+ fall further short of targets The easing of China's zero-Covid policy helped oil to the third day of gains following a decent correction in recent weeks. As did reports that the UAE and Saudi Arabia are producing near capacity, in stark contrast to claims that both are holding back and could do more. To make matters worse, OPEC+ compliance stood at 256% in May, 2.7 million barrels per day below target taking the total shortfall under the agreement to more than half a billion. ​ Even sanctions being lifted on Iran and Venezuela can't do much against that backdrop. It may well take a recession to return oil prices to sustainable levels any time soon. Can the ECB Forum inject life into gold? Gold has slipped a little this week as yields have edged higher, supporting the dollar and weighing on the yellow metal. It still hasn't moved particularly far though and very much remains rangebound. Tomorrow's central bank event in Portugal could inject some life into the gold price, having spent weeks now in a consolidation phase. Support remains at $1,800, with $1,870 key resistance to the upside. Slipping back towards $20,000 It's been much the same in bitcoin, although I'm sure the crypto crowd will be relieved at that given the stream of negative headlines over the last couple of months. I fear more may follow in the weeks ahead and I wonder whether the community does too, given its inability to get any traction above $20,000.

Stock indexes are coming off their first winning week in over a month even as economic and geopolitical storm clouds remain little changed. While bulls want to believe this is an early sign that stock prices may be close to finding a bottom, others caution that portfolio rebalancing could be having an outsized influence on markets right now. The midway point of the year This week brings the end of the month as well as the end of the second quarter on Thursday, June 30, which will also mark the midway point of the year. Considering the dramatic shift in stock prices during Q2 along with the relatively low trading volume that has set in, this "rebalancing period" is expected to be particularly active and likewise have a stronger than normal impact on market direction. Some insiders credit portfolio rebalancing toward the end of Q1 for a short-lived rally during the last week of March. For reference, the S&P 500 is still about -700 points lower since the peak of that rally, so there could still be more room to upside as the money continues to move and reposition into quarter-end. Data to watch This week, investors have a ton of key data to digest that will touch on a broad range of economic sectors as well as provide critical updates on inflation. The PCE Prices Index due on Thursday is by far this week's highlight with bulls anxious to see any signs that prices are starting to moderate. Fed Chair Jerome Powell made it clear in comments last week that the central bank needs to see "substantial evidence" that inflation is coming down before they will consider slowing down the current policy tightening path. Headline PCE Prices is expected to see a pretty big rise due to the surge in May gas prices. The core rate, which strips out food and energy, is expected to hold steady or move down slightly. The Fed typically prefers "core" inflation gauges but has indicated that it may rely more heavily on headline numbers, at least temporarily, due to the heavy influence that gas and food prices have on consumer and business sentiment. Results on Friday for the University of Michigan's Consumer Sentiment survey showed that inflation expectations have moved down a bit but overall sentiment fell to a new all-time record low. This has investors growing more concerned that a stiff gain in the headline rate will pressure the Fed into raising rates even faster and higher than planned, and possibly looking at other ways to pump the brakes on the economy. Some on Wall Street believe the economy has already slowed substantially or may even be in a recession, so the idea that the Fed wants to slow slow things down even further remains a pretty big stumbling block for many bulls. Economists are closely tracking the manufacturing sector for early warning signs of bigger trouble. The more closely-followed ISM Manufacturing Index on Friday will provide slightly more up-to-date data, capturing manufacturing activity and inflation through early June. The final estimate of Q1 GDP is due out on Wednesday and could fan recession worries if the read is lowered from the previous estimate for a decline of -1.5%. Don't forget, traders and investors will also be positioning ahead of the upcoming extended July 4th holiday weekend. The market will more than likely thin out ahead of the holiday and create the possibility of increased volatility.

The German IFO Business Climate Index for Europe decreased marginally from 93.0 in May and 92.9 in consensus estimates to 92.3 in June. The Current Economic Assessment also declined in the reporting month from May's 99.5 to 99.1 points, as was predicted. Unexpectedly, the IFO Expectations Index, which measures businesses' estimates for the next six months, fell to 85.8 in June from 86.9 in May and 87.4 in market expectations. Following the publication, institute economist Klaus Wohlrabe stated that despite elevated uncertainty, a recession is not now in progress. But the prospect of a gas shortage has made businesses more hesitant. Double bottom? It looks like a perfect double bottom pattern, with the support near February lows at 5,850 EUR. Thus, we might see some impulsive bullish momentum as long as that level holds.  The resistance is expected at May's lows near 6,075 EUR, and if broken to the upside, a further rally toward 6,250 EUR could occur. However, considering the recent problems in the global economy, any rallies are likely to be considered corrective pullbacks, with the long-term bearish trend possibly remaining intact.

As Congress sought answers from Federal Reserve chairman Jerome Powell this week, investors are seeking buying opportunities in oversold markets.  Stocks did manage to bounce on hopes that the worst of the inflation spike might be behind us. Precious metals, meanwhile, struggled to gain any upward traction. It was also a rough week for base metals, energy, and broader commodity markets. The CRB commodity index plunged to its lowest level since March.  Although prices for most raw materials remain considerably higher year to date, the selloff in futures markets since the Fed’s 75 basis-point rate hike may give the economy at least some temporary relief from inflation.     Fed chairman Jay Powell was grilled by lawmakers on the hot topic of inflation during testimony Wednesday and Thursday. Powell actually admitted that the Fed got it wrong when it came to expecting inflation to be transitory. But he denied that the Fed’s massive expansion of the currency supply is a major contributor to rising prices. Powell’s attempts to skirt blame were shut down by Representative Blaine Luetkemeyer: Jerome Powell: So most overwhelmingly, most economists would not think of it in terms of money supply, but would think of it in terms of supply and demand. And although there may be a role for money supply, they would think in terms of supply and demand being out of balance and that's how I think about it. Rep. Luetkemeyer: The definition of inflation I've always had was too many dollars chasing too few goods and services. Powell was also taken to task over the Fed’s contribution to inflation by Louisiana Senator John Kennedy: Sen Kennedy: The United States Congress, in addition to its regular budget, has spent $7 trillion. I'm not saying all of it was unnecessary. On top of that, the feds increased its balance sheet from $1.5 trillion dollars to $9 trillion. $9 trillion. I know you're cutting it back, but we've injected all of this money into the economy, and then people go, "Well, we have inflation." Duh. Central bankers and politicians who try to dodge responsibility for inflation are counting on people to be very short sighted when it comes to the causes of rising prices. It’s true that supply and demand dynamics that affect prices over any given economic cycle can be tied to a host of things ranging from war to the weather.   President Joe Biden continues to blame Vladimir Putin for inflation even as the Biden administration launched a broad new war on oil and gas producers and showered the public with a more than a trillion dollars in new giveaways shortly after taking office.   As Chairman Powell himself acknowledged, the inflation rate was already surging to a multi-decade high before Putin launched his invasion of Ukraine. Gasoline prices are certainly susceptible to heightened volatility due to international conflict. But there’s a singular reason why gas prices are ranging between $3.00 and $6.00 per gallon this year instead of between $1.00 and $2.00 like they were during the energy shock of the early 1980s. That reason is that the currency has lost two thirds of its purchasing power over the past 40 years. In any given year, the depreciation of the dollar isn’t necessarily reflected in a particular asset market. Some years, for example, may see home prices surge at the same time as gold prices dip. Other years may see gold outshine all the other major asset classes.  But over a period of many years, the gold market will tend to reflect the dollar’s purchasing power losses – which of course are directly related to the ever-rising supply of dollars.   Gold doesn’t have more intrinsic value today at over $1,800 an ounce than it did 40 years ago at $400 an ounce. It’s the currency in which gold prices are denominated that has changed in value. The U.S. fiat dollar will continue to lose value even if the Fed manages to get the inflation rate down. Policymakers will never allow all the price level increases that have been built into the economy to date to reverse. That would amount to deflation – something central bankers fear more than anything else.   The only question is where the inflation will show up next. Stocks, housing, and energy markets have each had their big runs since the Fed flooded the economy with emergency liquidity in 2020. Precious metals markets did get a post-COVID boost, but they have lagged behind other asset classes since inflation became a front-page story.  As the headlines shift toward concerns about a recession, gold and silver can be expected to start outperforming economically sensitive assets. Yes, the metals will eventually have their moment to shine as they always do when the dollar declines.

It’s certain that the recession will come eventually. The questions are: when, how will it impact the market, and are there any reasons to be afraid? Is a recession coming? Yes, it is! Recession is a normal part of a business cycle, so, yes, the current phase of economic boom will eventually turn into recession. That’s for sure. The more tricky question is about timing: is a recession just around the corner, as more and more economists and analysts worry? Well, there are some disturbing economic signals worth looking at. First, in the first quarter of 2022, the real US GDP decreased 0.4% compared to the Q4 of 2021 (see the chart below), or 1.4% at an annualized rate, according to the advance estimates by the Bureau of Economic Analysis. The decline in GDP is always scary, but this time it shouldn’t be, as it resulted mainly from an increase in the trade deficit, i.e., the widening difference between exports and imports. What happened is that supply chains improved, so imports of goods surged, causing the GDP to drop, as exports are added to the GDP while imports are subtracted from it. However, this is likely to reverse, as businesses won’t build inventories all the time. Moreover, consumers are switching their spending from goods to services, while China’s new lockdowns will cause fresh distortions in the supply chains, which will also reduce imports. Thus, the recent decline in GDP doesn’t signal a recession. Second, the yield curve has inverted. As the chart below shows, the spread between 10-year and 2-year Treasuries turned briefly negative at the turn of March and April. The inversion of the yield curve is probably the strongest recessionary indicator, so it should be taken seriously. However, the spread between 10-year and 3-month Treasuries didn’t invert (neither the difference between 10-year yields and the federal fund rate). Actually, this spread became steeper in April, and is well above the negative territory, as the chart below. This is very important as this maturity combination is believed to be the most accurate recessionary indicator, better than the use of 10-year and 2-year yields. In 2019, both curves inverted, which provided a much stronger recessionary signal. Hence, I wouldn’t use the recent brief inversion as a justification for strong recessionary calls, at least not yet, and I would wait for other confirming signals. Third, there is a big correction in the US stock market. As the chart below shows, the S&P 500 Index plunged 18.7% from its all-time high in January, while Dow Jones sank 15%. Many people define a bear market as a situation when prices fall 20% or more from their recent highs. So, although we haven’t reached the bear market, we are very close to it. However, even if there is a technical bear market in stocks, it doesn’t have to imply an imminent recession. As the old joke goes, “the stock market has predicted nine of the past five recessions”. Bear markets are a normal part of the stock market’s functioning, and they don’t have to indicate economy-wide recessions. Last but not definitely least, high inflation reduces real wages for most workers, negatively affecting spending and market sentiment. To combat such a high inflation, the Fed would have to hike the interest rates to a level that risks triggering a recession. What does it all mean for the precious metals market? Well, gold generally shines during periods of economic crisis, so the upcoming recession would be great news for the yellow metal. But I don’t see it in the data yet, so, we will have to wait a little longer for the next rally in the gold market. However, gold bulls shouldn’t feel disappointed. The economic outlook is generally gloomy. Economic growth has slowed down – the IMF cut its forecast for global growth this year to 3.6% from 4.4% expected in January and from 6.1% in 2021 – while inflation is still above 8%. There is a war in Europe, and the Fed is tightening its monetary policy and financial conditions. Such a mixture won’t end well, and – given how high is inflation already – I don’t believe that the Fed will engineer a soft landing. Actually, I would say that a recession is almost certain within a few years – what is unsure is its reason. There are two options. The first is that the Fed will bring inflation under control. However, to do this now – when inflation is already high – it would have to raise interest rates and tighten monetary conditions in an aggressive manner that would likely cause a recession. The second scenario is that inflation remains unchecked and would produce sufficient economic distortions to lead to the recession on its own. One way or another, an economic downturn...

24 June 2022 - According to data from global investment trading platform, Capital.com, 38% of trades placed by its clients so far this quarter are short, which is 15% higher compared to the same period last year. This may suggest that traders have been getting more bearish as the year goes on —although of course as a total group most are still favouring the long side of the market.  “Given the size of market slides— across all sorts of asset classes this year—it is perhaps not surprising that more traders are choosing to short-sell,  to perhaps position themselves to profit from further market weakness, or even hedge other investments.  Once again it is the NASDAQ 100 that has proved to be the most popular market with traders this week.  Volatility always attracts traders - and we still continue to see sizeable swings in global stock indices.  Only last week the NASDAQ traded down to its lowest levels since November 2020.  The last few days have seen something of a bounceback but at the moment, opinion seems split as to whether this is a sustainable recovery or just another dead cat bounce before the market slides lower once more. The area that has seen the largest jump in short trades is commodities. This may suggest— for some traders at least—there is a level of comfort in trying to call the top in the great commodity bull run that has persisted for at least the last couple of years.  Of course, a fall in commodities would be welcome by many economies around the world as it would help to slow the rise of inflation. After the NASDAQ index, the next two most traded markets on Capital.com over the past week have been in the energy grouping: crude oil and natural gas. During June, West Texas Crude has travelled from above $120 a barrel back towards $101. Although lacking any firm direction, these sort of swings provide plenty of day to day volatility to attract shorter-term traders.  Natural Gas has been more volatile again compared to crude oil with geopolitical developments an important driver for this market recently, as Europe tries to find alternatives to Russia for its energy requirements. This month US Natural Gas has dropped by 38% in under three weeks - it remains to be seen whether we have seen an important top in this market for now - or whether this is just another buying opportunity before the price races higher once more.”