Fed Mester: Rate Needs To Go Beyond 5%

Gold is 2% away from hitting all-time highs in nearly every currency. Why? Global financial uncertainty, inflation, de-dollarization, and record central bank gold buying in 2022.

Is this the start of a new gold bull market?

Market

Prices as of 4 pm EST, 4/4/23

Macro

• The Fed’s Loretta Mester said she was “very comfortable” with the decision to hike by 25bps in March and thinks policymakers should continue lifting rates beyond 5%. The Cleveland Fed President believes the benchmark rate will need to stay above that level for “some time” and does not anticipate any cuts in 2023.

• Zooming out, China has asked the World Trade Organization (WTO) to review US-led restrictions on chip exports that aim to hinder its ability to produce advanced chips. The country says that plans from the US, Japan, and the Netherlands violate the WTO’s fairness and transparency principles.

• Zooming back in, the number of job openings in the US fell below 10 million in February for the first time since May 2021. Meanwhile, the Fed’s closely watched ratio of openings to unemployed persons dropped sharply, falling to 1.67 from close to 2.

Stocks

• In the wake of multiple bank failures around the world, TD Bank has become the world’s biggest bank short. Short seller bets against the lender total $3.7 billion as traders zero in on its exposure to the slowing Canadian housing market as well as a planned regional bank acquisition.

• After selling 20,670 electric vehicles (EVs) in the US during Q1, GM GM has surpassed Ford F as the second-best seller of EVs in the country. The former’s total sales nearly doubled that of the latter’s (10,866) but remains well behind Tesla’s (NASDAQ: TSLA 161,630 EVs sold over the same period.

• The rally in US equities to start the year has been driven largely by the S&P 500’s top 20 stocks which have accounted for nearly all of the index’s gains in 2023. According to Apollo’s Torsten Sløk, this suggests a market driven by rates rather than broad-based growth expectations.

Energy

• Following the largest one-day spike since Russia’s invasion of Ukraine on Monday, oil prices steadied on Tuesday after the American Petroleum Institute (API) reported a 4.3 million barrel drop in crude stockpiles. We’ll get updated figures on stock changes from the US Energy Information Administration (EIA) later this morning.

Earnings

• Conagra Brands CAG

• Simply Good Foods SMPL

• Seadrill SDRL

News

• Frank: Charlie Javice, the founder of college financial-planning platform startup ‘Frank’, has been criminally charged with fraud for duping JPMorgan to the tune of $175 million.

• Manufactured goods: Factory orders in the US saw their second consecutive drop and third in four months, falling 0.7% in February.

• Bullion: Gold prices jumped to a 13-month high yesterday and closed above $2,000 for the first time since March 2022 following the latest job openings data.

• Reverse repo: Money market funds are increasingly investing in the Fed’s overnight reverse repurchase facility which is raising concerns over a dry-up in cash that would otherwise be invested or lent out.

• Dimon: In his annual letter to shareholders, JPMorgan CEO Jamie Dimon criticized regulators for incentivizing banks to hold government securities and failing to impose effective stress tests.

Crypto

Prices as of 4 pm EST, 4/4/23

• Risk appetite: Bitcoin’s BTC/USD spot-to-derivatives trading volume ratio has dropped to an 11-month low, suggesting renewed risk appetite and the potential for price volatility in crypto markets.

• Report: While the number of crypto attacks increased during Q1, total losses fell by 64% from a year earlier ($317 million vs. $477 million).

• Mining: Lawmakers in Texas unanimously approved a bill that aims to end tax breaks and require registration for Bitcoin mining operations using over 10 megawatts.

• Tokenized gold: As real gold shoots past $2,000/oz, the market cap for tokenized gold has similarly surged, reclaiming the $1 billion mark this week.

• Shanghai: Just 8 days away, Ethereum’s Shanghai update could bring about $2.4 billion worth of selling pressure to the world’s second-largest cryptocurrency.

Deals

• O&G: Apollo Management has made its final offer to buy British oil services and engineering firm John Wood Group for $2.1 billion.

• SPAC scramble: With deadlines looming, SPACs are scrambling for target companies outside the US with at least 10 such deals announced since late February.

• Batteries: Automakers Stellantis and BMW are in talks with Panasonic about a partnership to build EV battery plants in North America.

• Buyout losses: Wall Street banks that financed the leveraged buyout of Citrix last year–including Goldman, BofA, and Credit Suisse–are on the hook for $1.5 billion in losses after selling nearly $4 billion of the tech company’s junior bonds.

• Sports betting: British gambling group Entain has acquired sports media business 365scores in a deal worth up to $160 million.