Stocks rally as China eases COVID rules and as banks raise dividends, Oil rallies, Gold steady, Bitcoin stuck in the mud – OANDA
US stocks are rallying after several banks boosted their dividends and China pivoted away from their strict COVID policy. Wall Street seems to be close to figuring out how high central banks may take rates over in the short-term and that is supportive for long-term investors to scale into positions. We will see if the peak of inflation is in place, but for now some traders are comfortable with the idea that the ECB will bring rates to positive territory and as Fed easily has a couple more massive rate hikes on the table.
A lot of the major US banks celebrated stress test results with a strong boost with their respective dividends. Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) raised their dividends, while JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) kept their dividends unchanged. Given the uncertain economic environment, you can’t blame the decision to refrain from boosting payouts as a severe slowdown with economic activity could lead to the need for additional capital.
JPMorgan and Citigroup might need to free up some cash later this year for the new required capital levels, which might make them the least attractive of the banking giants.
Crude prices rallied after China reduced the quarantine time for inbound visitors and as Beijing and Shanghai declared zero COVID cases for the first time in months. China is showing they realize they can’t keep their strict COVID controls. Earlier, Chinese authorities triggered some alarm after noting that the zero-COVID policy could be in place for the next five years. The crude demand outlook is getting a major boost after China cut the mandatory isolation time in half to seven days.
The easing of China’s quarantine times could support the idea that Beijing might be getting closer to pivoting away from their zero-COVID policy, but that shift probably can’t happen till closer to the end of the year.
Earlier oil edged higher over expectations Libya would not be able reliably export crude as protests spread and as risk appetite returned to Wall Street.
The supply side of the oil equation should remain supportive for prices even if OPEC+ sees the Saudis deliver a little more crude to help cover the shortfall from Nigeria and Angola. President Biden’s July trip to Saudi Arabia is mostly for political theater and won’t really lead to a meaningful increase beyond the planned OPEC+ boost of 648K b/d of supply in July and August.
Gold is struggling for direction today as risk appetite returns to Wall Street as global bond yields rise. Fixed income has been under pressure after ECB’s Lagarde affirmed they are poised to raise rates by 25 bps in July while they can kick off their new bond-purchasing operation. The G7 actions against Russia aren’t hard hitting as they won’t see involvement from China.
Gold seems like it will struggle until the peak inflation question is answered. If Treasury yields can retest the earlier highs seen this month, gold might be vulnerable to one last test sub-$1800 before the bullish bets return.
One of last week’s crypto saga occurred when physical futures crypto exchange CoinFLEX halted all withdrawals. This week, the crypto exchange announced they will launch a Recovery Value USD token. They are relying on private investors to cover half of the issuance and that if that holds, they appear on their way to survive this liquidity crisis. It will take some time for investors to feel the liquidity concerns are in the rear-view mirror.
Bitcoin remains anchored at around the $20,000 level and won’t breakout until Wall Street is confident a broader slowdown is not happening.