US Close: Stocks punished on rate fears, Fed speak, Dollar higher, Gold finds support, Crypto lower

Wall Street appears to be closing out the week on a down note as investors become rattled over the prospect of more tightening by the Fed. It isn’t just Fed expectations that are rising, traders are also expecting the ECB to send rates much higher. It looks like global growth will definitely take a harder hit as monetary policy gets even more restrictive over the next few months.

More from the Fed

Fed’s Bowman reiterated inflation is still too high and that they need to continue hikes until we see more progress. She did note the Fed is seeing a lot of inconsistent data in economic conditions. It doesn’t look there is a chance that the Fed will be holding anytime soon, which should keep sending yields higher at the short-end of the curve.

Fed’s Barkin however wants to remain flexible and favors a 25 basis point increase. He acknowledges that he is not ready to declare victory on inflation.

FX

Friday’s sell everything trade initially sent the dollar higher as risk aversion appears to be running wild as Fed tightening jitters make it more likely the US economy is recession bound. The latest round of hawkish Fed speak from Bullard, Mester, and Bowman have swaps pricing rate hikes at the March and May meetings. The dollar pared earlier gains as yields came in around the European close and after Fed Barkin’s comment that he favors 25bp rate hikes for flexibility.

Oil

Crude prices are falling as supplies are plentiful and as global growth concerns return as the Fed and ECB seem poised to take interest rates even further into restrictive territory. The belief that OPEC+ can keep prices supported wherever they want is waning as global growth outlooks take a turn for the worse. As long as supplies seem ample, OPEC+ will be playing catchup to keep the market tight. Oil is seeing steady selling pressure and the true test will be if prices can break below the $72.00 a barrel level.

Gold

Gold prices got crushed this week as the bond bears are fully in control now that the market is pricing in more Fed rate hikes. Gold’s vulnerability to further downside however should be limited as central banks appear poised to increase their bullion holdings. Global recession risks are returning and that should lead to some safe-haven flows for gold.

Gold should have major support ahead of the $1800 level, which means we might be stuck in a range until we have clearer signs if inflation is going to continue to accelerate here.

Crypto

Bitcoin is lower on the day as every risky asset sold off on fears of more aggressive Fed tightening and rising recession risks. After Bitcoin tested the $25,000 level and failed to extend higher, many active traders locked in profits. Appetite for risky assets might struggle over the short-term, which could support a Bitcoin consolidation as long as a regulatory crackdown does not take down a key stablecoin or crypto company.

Many crypto traders are paying close attention to the reports that Binance might exit relationships with US companies as pressure from regulators intensifies. Binance CEO Changpeng Zhao (CZ) tweeted, “Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm.”

Binance is the world’s largest exchange and if it abandons key US relationships, that is a major setback for the cryptoverse.