US Close: Stocks rally on peak hopes, UAE OPEC drama sends prices on a rollercoaster ride, Gold shines, Crypto struggles on Silvergate woes

US stocks rallied after another impressive ISM services index suggests that part of the economy remains healthy and as Treasuries rally after the Fed’s monetary policy report said “high inflation is not becoming entrenched.” Wall Street has had a lot of Fed speak to digest over the past week, but it seems clear that traders believe we are very close to the peak despite all these signs of a resilient economy.

Fed

Yesterday’s Fed’s Bostic noted that he is open to further rate hikes pending new data, but traders only listened to his comment that he targets a summer pause.  Fed’s Waller remains data-dependent and said they might need to tighten more if the data is hot.  The data has clearly been closer to hot, but that did not unravel the Wall Street’s shift back into risk-on mode.  

Oil

Crude prices are surging after the UAE refuted earlier speculation that they were considering leaving OPEC and after ISM service report supports the idea the US economy is still strong. Oil is also getting a boost from a weakening dollar as Treasuries rally. 

The oil market is starting to look tight again as China’s economy rebounds and over the resilience of the US service sector.  Rig counts according to Baker Hughes also declined by 8 to 592. 

Oil looks like it might try to find a home above the $80 a barrel level and that could happen next week if traders after the National Party Congress become impressed with China’s growth strategy.

Gold

Gold prices are rallying as investors put an end to the bond market selloff and over optimism that China’s economy is about to roar.  The peak in rates is getting closer, but I’m a bit surprised the 2-year Treasury yield didn’t make it closer to 5.00%.  Next week will be huge for the bond market as we will hear Fed Chair Powell’s semi-annual testimony to Congress and we get the latest jobs report. 

Gold could have a make-or-break moment next week.  If Fed Chair Powell sticks to the hawkish script and we don’t see a major downward revision to January and a strong job gain in February, gold could see this week’s rally evaporate. If Powell provides optimism that the peak is close to getting put in place, gold could skyrocket.

Crypto

Bitcoin is declining after a key banking provider for the crypto industry is fighting for survival.  Silvergate struggles have been firmly in place all of last year, but now liquidity risks having many crypto traders concerned. The failure to file its annual report on time raised concerns that they might not be able to survive.  Several key crypto companies are abandoning using Silvergate and this is bringing back some contagion concerns. 

Bitcoin continues to stay in its $21,500 to $25,000 trading range.