Written by: Edward Moya | OANDA
Wall Street is in for a choppy market until Thursday’s inflation report. Global bond yields are falling, stocks are mixed, the dollar is up slightly, Bitcoin has a flesh wound, and meme stock mania is fizzling. The conviction behind today’s market moves is minimal at best.
This is an attractive trading day-trading environment for meme stock mania, but rather difficult for your typical swing or long-term investor. US stocks have largely been stuck in a range since mid-April and don’t seem likely to be breaking out anytime soon. Investors want to see how hot pricing pressures get and how much downside in equities will occur once the Fed’s taper tantrum begins. A repeat of the 2013 taper tantrum seems unlikely as the economy will still be roaring back from the pandemic and likely benefiting from infrastructure spending. US stocks still seem destined to finish the year much higher from where we are now, but markets already appear to be in summer doldrum mode. To move the needle, Wall Street needs to see either a couple of more super-hot inflation reports or well over 2 million jobs added to the economy over the summer months.
Meme
Active day traders have been loving the volatility, liquidity, and relentless retail support. Even after a total of seven AMC insiders have sold a portion of their stake since May 28th, the stock continues to attract buyers. CEO Adam Aron remains committed to owning the stock and has not sold any shares.
There is just too much liquidity in AMC and some other meme stocks that it makes it impossible for money managers and hedge funds to pass up this opportunity. The AMC apes are having their way, but this latest frenzy will eventually wear off. Today's meme stock rally was short-lived.
Today, GameStop and Wendy’s are in focus. Wendy’s joined meme stock mania as social media forums look to widen their coverage of stocks. Wendy’s has as an easy fundamental backdrop, the company just raised guidance and should see strong momentum as the country continues to reopen.
GameStop is getting pumped up ahead of tomorrow’s earnings and hopes of some more details with their new NFT platform.
Meme stock mania part two is in its third week and if it follows the pattern we saw earlier in the year, it could calm down by the end of next week. This time however could be different, if US stocks remain anchored.
US Data
A couple of key readings over the health of small business and a report over job openings confirmed employers are battling a labor supply problem. The Fed has a ‘help wanted’ problem, too many people aren’t willing to come to work. Substantial progress in the labor market recovery no longer seems to be in plain sight. The Fed’s ultra-accommodative stance is not going away anytime soon and some investors might start to think a taper announcement at Jackson Hole Symposium in August might be premature.
The NFIB Small Business Optimism Index unexpectedly declined in May as owners struggled at record levels trying to fill job vacancies. The headline index dipped to 99.6 from 99.8, but most traders focused on the 4 point raise over average selling prices to 40%, the highest level since April 1981.
The April JOLTS job openings index surged to a record high of 9.3 million, higher than the 8.2 million consensus estimate and upwardly revised 8.288 million prior reading. Hires continue to hover at 6.1 million, which means a three million gap exists of jobs that can’t get filled. The quit rate jumped to a record level of 2.7%, which means people are confident they can get a job if they want one.
Oil
Crude prices rose after Dr. Anthony Fauci, the nation’s top infectious disease expert, noted that both the Pfizer and AstraZeneca COVID vaccines are effective against the Delta variant post two doses. While the US and large parts of Europe are in a robust crude demand recovery, a lot of the world is still struggling with COVID-19. Emerging markets are getting their hands on more vaccines and that is very positive for oil prices. Brazil’s health minister noted they have enough COVID vaccine doses.
The US lifted a travel advisory for Singapore to normal precautions, a steady sign that international air travel should improve dramatically in the coming months.
Also providing some support for oil prices was reports that Iran's next president, most likely a hardliner, won't derail the Iran nuclear deal talks. It seems talks could drag on much longer which means the timeline for additional output from Iran keeps getting pushed back.
Oil remains the easiest trade in the commodity space given the wait-and-see approach with the upcoming US inflation report on Thursday.
Gold
Gold won’t do much of anything until financial markets get a better handle over pricing pressures. Gold will likely dance around the $1,900 level until investors figure out if the latest CPI report forces more Fed members to embrace the idea of talking about tapering.
Until Thursday’s main economic data release, gold will likely follow the move in Treasuries. The technicals are supporting a bounce for Treasury yields, so gold might remain soft.
Gold’s medium-and -long-term outlooks both remain bullish as it will take at the very least a few more hotter-than-expected inflation reports to move the Fed’s undisclosed timeline over tapering. The transitory thesis still remains intact and this upcoming inflation report shouldn’t change anything.
Bitcoin
After falling around 9%, some Bitcoin bulls might think today's pressure was just a flesh wound. The momentum with Bitcoin swings should make every crypto trader nervous. Bitcoin was under pressure after US officials announced the seizing of $2.3 million in cryptocurrency ransom paid by Colonial Pipeline Co. The US government took over the server where the wallet existed and somehow got the private key for the address that held the majority of the funds. This uncertainty over how they got their private key is scaring many bad players to exit Bitcoin holdings.
Bitcoin extended declines after the IRS Chief called on Congress for authority to regulate cryptocurrencies. Bitcoin is dangerously approaching the $30,000 level as regulatory fears grow and as retail traders prefer to focus on meme stocks. Long-term Bitcoin bulls are getting nervous as a break of $30,000 could see a tremendous amount of momentum selling. Many traders have waited for one more push lower, which could see crypto traders wait for a plunge towards the $20,000-$25,000 area.
MicroStrategy remains confident in Bitcoin and has boosted their junk bond deal to $500 million.
Related: Global Tax Reality or Fantasy?