Category Archives: Silver

Debate has been simmering over whether Federal Reserve policy makers will raise the fed-funds rate by three-quarters of a percentage point later this month, as they did in June, or step up their inflation-fighting campaign with a full point hike —- something that hasn’t been seen in the past 40 years.Friday’s economic data, which included somewhat improving or steady inflation expectations from the University of Michigan’s consumer survey, prompted traders to lower their expectations for a 100 basis point hike in less than two weeks. The size of the Fed’s next rate hike might be splitting hairs at this point, however, given the bigger, overwhelming issue confronting officials and financial markets: A 9.1% inflation rate for June that has yet to peak.Generally speaking, investors have been envisioning a scenario in which inflation peaks and the central bank is eventually able to back off aggressive rate hikes and avoid sinking the U.S. economy into a deep recession. Financial markets are, by nature, optimistic and have struggled to price in a more pessimistic scenario in which inflation doesn’t ease and policy makers are forced to lift rates despite the ramifications for the world’s largest economy. It’s a big reason why financial markets turned fragile a month ago, ahead of a 75 basis point rate hike by the Fed that was the biggest increase since 1994 — with Treasurys, stocks, credit and currencies all exhibiting friction or tension ahead of the June 15 decision. Fast forward to present day: Inflation data has only come in hotter, with a greater-than-expected 9.1% annual headline CPI reading for June. As of Friday, traders were pricing in a 31% chance of a 100 basis points move on July 27 — down significantly from Wednesday — and a 69% likelihood of a 75 basis point hike, according to the CME FedWatch Tool.“The problem now does not have to do with 100 basis points or 75 basis points: It’s how long inflation stays at these levels before it turns lower,” said Jim Vogel, an interest-rate strategist at FHN Financial in Memphis. “The longer this goes on, the more difficult it is to realize any upside in risk assets. There’s simply less upside, which means any round of selling becomes harder to bounce back from.”An absence of buyers and abundance of sellers is leading to gaps in bid and ask prices, and “it will be difficult for liquidity to improve given some faulty ideas in the market, such as the notion that inflation can peak or follow economic cycles when there’s a land war going on in Europe,” Vogel said via phone, referring to Russia’s invasion of Ukraine. Financial markets are fast-moving, forward-looking, and ordinarily efficient at evaluating information. Interestingly, though, they’ve had a tough time letting go of the sanguine view that inflation should subside. June’s CPI data demonstrated that inflation was broad-based, with virtually every component coming in stronger than inflation traders expected. And while many investors are counting on falling gas prices since mid-June to bring down July’s inflation print, gasoline is just one part of the equation: Gains in other categories could be enough to offset that and produce another high print. Inflation-derivatives traders have been expecting to see three more 8%-plus CPI readings for July, August and September — even after accounting for declines in gas prices and Fed rate hikes.Ahead of the Fed’s decision, “there will be dislocations across assets, there’s no other way to put it,” said John Silvia, the former chief economist at Wells Fargo Securities. The equity market is the first place those dislocations have appeared because it has been more overpriced than other asset classes, and “there aren’t enough buyers at existing prices relative to sellers.” Credit markets are also seeing some pain, while Treasurys — the most liquid market on Earth — are likely to be the last place to get hit, he said via phone. “You have a lack of liquidity in the market and gaps in bid and ask prices, and it’s not surprising to see why,” said Silvia, now founder and chief executive of Dynamic Economic Strategy in Captiva Island, Florida. “We’re getting inflation that’s so different from what the market expected, that the positions of market players are significantly out of place. The market can’t adjust to this information this quickly.”If the Fed decides to hike by 100 basis points on July 27 — taking the fed-funds rate target to between 2.5% and 2.75% from a current level between 1.5% and 1.75% — “there will be a lot of losing positions and people on the wrong side of that trade,” he said. On the other hand, a 75 basis point hike “would disappoint” on the fear that the Fed is not serious about inflation.All three major U.S. stock indexes are nursing year-to-date, double-digit losses as inflation moves higher. On Friday, Dow industrials
DJIA,
+2.15%,
S&P 500
SPX,
+1.92%
and Nasdaq Composite
COMP,
+1.79%
posted weekly losses of 0.2%, 0.9% and 1.6%, respectively, though they each finished sharply higher for the day.For the past month, bond investors have swung back and forth between selling Treasurys in anticipation of higher rates and buying them on recession fears. Ten- and 30-year Treasury yields have each dropped three of the past four weeks amid renewed interest in the safety of government debt. Long-dated Treasurys are one part of the financial market where there’s been “arguably less financial dislocation,” said economist Chris Low, Vogel’s New-York based colleague at FHN Financial, even though a deeply inverted Treasury curve supports the notion of a worsening economic outlook and markets may be stuck in a turbulent environment that lasts as long as the 2007-2009 financial crisis and recession.Investors concerned about the direction of equity markets, while looking to avoid or trim back on cash and/or bond allocations, “can still participate in the upside potential of equity market returns and cut out a predefined amount of downside risk through options strategies,” said Johan Grahn, vice president and head of ETF strategy at Allianz Investment Management in Minneapolis, which oversees $19.5 billion. “They can do this on their own, or invest in ETFs that do it for them.”Meanwhile, one of the defensive plays that bond investors can make is what David Petrosinelli, a senior trader at InspereX in New York, describes as “barbelling,” or owning securitized and government debt in the shorter and longer parts of the Treasury curve — a “tried-and-true strategy in a rising rate environment,” he told MarketWatch. Next week’s economic calendar is relatively light as Fed policy makers head into a blackout period ahead of their next meeting.Monday brings the NAHB home builders’ index for July, followed by June data on building permits and housing starts on Tuesday.The next day, a report on June existing home sales is set to be released. Thursday’s data is made up of weekly jobless claims, the Philadelphia Fed’s July manufacturing index, and leading economic indicators for June. And on Friday, S&P Global’s U.S. manufacturing and services purchasing managers’ indexes are released. Continue reading →

LONDON (Reuters) – Traditional debt crisis signs of crashing currencies, 1,000 basis point bond spreads and burned FX reserves point to a record number of developing nations now in trouble.Lebanon, Sri Lanka, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least another dozen are in the danger zone as rising borrowing costs, inflation and debt all stoke fears of economic collapse.Totting up the cost is eyewatering. Using 1,000 basis point bond spreads as a pain threshold, analysts calculate $400 billion of debt is in play. Argentina has by far the most at over $150 billion, while the next in line are Ecuador and Egypt with $40 billion-$45 billion.Crisis veterans hope many can still dodge default, especially if global markets calm and the IMF rows in with support, but these are the countries at risk.ARGENTINAThe sovereign default world record holder looks likely to add to its tally. The peso now trades at a near 50% discount in the black market, reserves are critically low and bonds trade at just 20 cents in the dollar – less than half of what they were after the country’s 2020 debt restructuring.The government doesn’t have any substantial debt to service until 2024, but it ramps up after that and concerns have crept in that powerful vice president Cristina Fernandez de Kirchner may push to renege on the International Monetary Fund. GRAPHIC: The pain has spread- https://graphics.reuters.com/MARKETS-EMERGING/mopanaqkmva/chart.png UKRAINE Russia’s invasion means Ukraine will almost certainly have to restructure its $20 billion plus of debt, heavyweight investors such as Morgan Stanley (NYSE:MS) and Amundi warn.The crunch comes in September when $1.2 billion of bond payments are due. Aid money and reserves mean Kyiv could potentially pay. But with state-run Naftogaz this week asking for a two-year debt freeze, investors suspect the government will follow suit. GRAPHIC: Ukraine bonds brace for default https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrbaxrvm/Pasted%20image%201657725996621.png TUNISIAAfrica has a cluster of countries going to the IMF but Tunisia looks one of the most at risk.A near 10% budget deficit, one of the highest public sector wage bills in the world and there are concerns that securing, or a least sticking to, an IMF programme may be tough due to President Kais Saied’s push to strengthen his grip on power and the country’s powerful, incalcitrant labour union. Tunisian bond spreads – the premium investors demand to buy the debt rather than U.S. bonds – have risen to over 2,800 basis points and along with Ukraine and El Salvador, Tunisia is on Morgan Stanley’s top three list of likely defaulters. “A deal with the International Monetary Fund becomes imperative,” Tunisia’s central bank chief Marouan Abassi has said. GRAPHIC: African bonds suffering- https://fingfx.thomsonreuters.com/gfx/mkt/zdvxobognpx/Pasted%20image%201657541934055.png GHANA Furious borrowing has seen Ghana’s debt-to-GDP ratio soar to almost 85%. Its currency, the cedi, has lost nearly a quarter of its value this year and it was already spending over half of tax revenues on debt interest payments. Inflation is also getting close to 30%. GRAPHIC: How not to spend it- https://graphics.reuters.com/MARKETS-EMERGING/znpneakgkvl/chart.png EGYPT Egypt has a near 95% debt-to-GDP ratio and has seen one of the biggest exoduses of international cash this year – some $11 billion according to JPMorgan (NYSE:JPM). Fund firm FIM Partners estimates Egypt has $100 billion of hard currency debt to pay over the next five years, including a meaty $3.3 billion bond in 2024.Cairo devalued the pound 15% and asked the IMF for help in March but bond spreads are now over 1,200 basis points and credit default swaps (CDS) – an investor tool to hedge risk – price in a 55% chance it fails on a payment. Francesc Balcells, CIO of EM debt at FIM Partners, estimates though that roughly half the $100 billion Egypt needs to pay by 2027 is to the IMF or bilateral, mainly in the Gulf. “Under normal conditions, Egypt should be able to pay,” Balcells said. GRAPHIC: Egypt’s falling foreign exchange reserves- https://fingfx.thomsonreuters.com/gfx/mkt/zgpomxkqnpd/Pasted%20image%201657817324629.png KENYAKenya spends roughly 30% of revenues on interest payments. Its bonds have lost almost half their value and it currently has no access to capital markets – a problem with a $2 billion dollar bond coming due in 2024.On Kenya, Egypt, Tunisia and Ghana, Moody’s (NYSE:MCO) David Rogovic said: “These countries are the most vulnerable just because of the amount of debt coming due relative to reserves, and the fiscal challenges in terms of stabilising debt burdens.” GRAPHIC: Kenya’s concerns- https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnelzjvq/Pasted%20image%201657872126738.png ETHIOPIA Addis Ababa plans to be one of the first countries to get debt relief under the G20 Common Framework programme. Progress has been held up by the country’s ongoing civil war though in the meantime it continues to service its sole $1 billion international bond. GRAPHIC: Africa’s debt problems- https://fingfx.thomsonreuters.com/gfx/mkt/lbvgneokapq/Pasted%20image%201657727788029.png EL SALVADOR Making bitcoin legal tender all but closed the door to IMF hopes. Trust has fallen to the point where an $800 million bond maturing in six months trades at a 30% discount and longer-term ones at a 70% discount. PAKISTANPakistan struck a crucial IMF deal this week. The breakthrough could not be more timely, with high energy import prices pushing the country to the brink of a balance of payments crisis.Foreign currency reserves have fallen to as low as $9.8 billion, hardly enough for five weeks of imports. The Pakistani rupee has weakened to record lows. The new government needs to cut spending rapidly now as it spends 40% of its revenues on interest payments. GRAPHIC: Countries in debt distress at record high- https://fingfx.thomsonreuters.com/gfx/mkt/klpykyzxepg/Pasted%20image%201657728812497.png BELARUSWestern sanctions wrestled Russia into default last month and Belarus now facing the same tough treatment having stood with Moscow in the Ukraine campaign. GRAPHIC: Belarus bonds: https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrbzdmvm/Pasted%20image%201657848388314.png ECUADORThe Latin American country only defaulted two years ago but it has been rocked back into crisis by violent protests and an attempt to oust President Guillermo Lasso.It has lots of debt and with the government subsidising fuel and food JPMorgan has ratcheted up its public sector fiscal deficit forecast to 2.4% of GDP this year and 2.1% next year. Bond spreads have topped 1,500 bps. NIGERIABond spreads are just over 1,000 bps but Nigeria’s next $500 million bond payment in a year’s time should easily be covered by reserves which have been steadily improving since June. It does though spend almost 30% of government revenues paying interest on its debt. “I think the market is overpricing a lot of these risks,” investment firm abrdn’s head of emerging market debt, Brett Diment, said. GRAPHIC: Currency markets in 2022- https://fingfx.thomsonreuters.com/gfx/mkt/zgpomxnjrpd/Pasted%20image%201657869185784.png Continue reading →

(Bloomberg) — When FBI agents knocked on the door of his Brooklyn, New York, home in August 2018, trader John Edmonds told them he didn’t know anything about gold and silver price manipulation at JPMorgan Chase & Co. That was a lie, he admitted Thursday.Most Read from BloombergEdmonds, who worked at JPMorgan for about a decade, eventually pleaded guilty to conspiracy and commodities fraud and agreed to cooperate with prosecutors. He’s now a key government witness against his former boss, Michael Nowak, the longtime head of the precious-metals trading desk; gold trader Gregg Smith; and hedge fund salesman Jeffrey Ruffo.During two days of testimony at a criminal trial in Chicago, Edmonds described how the three senior executives routinely used “spoof” trades — huge orders that are quickly canceled before they can be executed — to push precious metals up or down from 2008 to 2016 to make trades for the bank and its clients more profitable. Edmonds said he learned how to spoof at JPMorgan.But Nowak’s defense lawyer David Meister, over several hours of cross examination Thursday, sought to undermine the credibility of Edmonds, who testified earlier that he’d committed no crimes since leaving JPMorgan in 2017.Meister questioned Edmonds about his FBI interview in 2018, and played a recording of the encounter made by the agents.“I don’t know what was going on in the market at that time,” Edmonds can be heard saying on the recording played for the jury. “Not spoofing, no manipulation. Like, that’s not what we do.”In federal court on Thursday, the former trader said he didn’t know lying to an FBI agent was a crime and regretted doing so. “I owned up to what I did, it’s what happened and the penalties are the penalties,” Edmonds said.Read More: JPMorgan Gold Desk ‘Spoofing’ Cheated Market, Ex-Trader SaysMeister also brought up comments by Edmonds under oath during a deposition he gave in a lawsuit against JPMorgan, after he’d left the bank. At the time, the former trader told federal authorities he didn’t know why one of his colleagues was fired in 2013. But on Thursday, Edmonds admitted that Nowak had told him in a meeting shortly after the firing that the former colleague had lost his job for spoofing.“You lied to the deposition, you lied to the FBI,” Meister said. “That’s two crimes committed after you left JPMorgan.”Edmonds, who has been on the witness stand since Tuesday, was hired at a salary of about $80,000 in 2008, and was earning about $300,000 annually by 2017, when he left the bank and took a severance buyout of about $157,000.On Friday, During cross-examination by Smith’s attorney, Jonathan Cogan, Edmonds admitted he also lied on his 2017 severance agreement with JPMorgan, which included a requirement that he disclose any violations of the bank’s code of conduct that he was aware of.Edmonds testified that while he signed the document saying there were no violations that he was aware of, “that was a lie.” He added that he has been telling the truth since he agreed to plead guilty and cooperate with prosecutors.Also under scrutiny was Edmonds’s trading record. Between 2009 and 2013 he averaged an annual loss of $39,000, according to data shown to the court, though he began to generate profit towards the end of that period.“Early on in my career, I lost money,” Edmonds said. “That was a learning curve,” and “over time I started to make more money, I started to get better,” he said.The annual profit of JPMorgan’s precious metals desk varied, but it never dipped below $100 million between 2007 and 2018, according to data presented by Meister. In its best year, it made more than double that.The case is US v. Smith et al, 19-cr-00669, US District Court, Northern District of Illinois (Chicago)(Updates with Friday testimony about severance package, agreement.)Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading →

‘The worst bear market in my lifetime’: Here’s why Jim Rogers thinks stocks will decline for a long time — but he also suggests 2 shockproof assets for protectionWith the S&P 500 down about 21% year-to-date, the situation for stocks is pretty grim — but according to legendary investor Jim Rogers, it’s just the start.“This has to be the worst bear market in my lifetime, which means it will go down a lot and it will last a long time,” the 79-year-old told ET Now last month.Spiking price levels present another concern. Rogers says that “most central bankers don’t know what they are doing” and “inflation will get worse.”He’s correct in that prediction, as we just learned that U.S. consumer prices increased 9.1% in June from a year ago — the fastest pace since November 1981.Rogers knows a thing or two about making money in turbulent times. He co-founded the Quantum Fund with George Soros in 1973 — right in the middle of a devastating bear market. From then till 1980, the portfolio returned 4,200%, while the S&P 500 rose 47%.If you are looking for a safe haven, Rogers says “there is no such thing as safe” in the world of investments. Still, the multimillionaire points to two assets that could help you withstand the upcoming onslaught – they also happen to be great hedges against rampant inflation.Don’t missSilverPrecious metals are a go-to choice for investors in dark times, and Rogers is a long-time advocate.“Silver is probably less dangerous than other things. Gold is probably less dangerous,” he says.Gold and silver can’t be printed out of thin air like fiat money, so they can help investors preserve wealth in inflationary periods. At the same time, their prices tend to stay resilient in times of crisis.But that doesn’t mean they are crash-proof.“I’m not buying them now, because in a big collapse, everything goes down. But I probably will buy more silver when it goes down some more.”Silver is widely used in the production of solar panels and is a critical component in many vehicles’ electrical control units. Rising industrial demand, in addition to its usefulness as a hedge, makes silver in particular a compelling asset for investors.You can buy silver coins and bars directly at your local bullion shop. You can also invest in silver ETFs like the iShares Silver Trust (SLV).Meanwhile, silver miners such as Wheaton Precious Metals (WPM), Pan American Silver (PAAS) and Coeur Mining (CDE) are also solidly positioned for a silver price boom.AgricultureYou don’t need an MBA to see the appeal of agriculture in a bear market: No matter how big the next crash is, no one is crossing “food” out of their budget.Rogers sees agriculture as a potential refuge in the upcoming collapse.“Silver and agriculture are probably the least dangerous things in the next two or three years,” he says.For a convenient way to get broad exposure to the agriculture sector, check out the Invesco DB Agriculture Fund (DBA). It tracks an index made up of futures contracts on some of the most widely traded agricultural commodities — including corn, soybeans and sugar.You can also use ETFs to tap into individual agricultural commodities. The Teucrium Wheat Fund (WEAT) and the Teucrium Corn Fund (CORN) have gained 12% and 13%, respectively, in 2022.Rogers also likes the idea of investing in farmland itself.“Unless we’re going to stop wearing clothes and eating food, agriculture is going to get better. If you really, really love it, go out there and get yourself a farm and you’ll get very, very, very rich,” he told financial advisory firm Wealthion late last year.Some real estate investment trusts specialize in owning farmland, such as Gladstone Land (LAND) and Farmland Partners (FPI).Meanwhile, new investing services allow you to invest in farmland by taking a stake in a farm of your choice. You’ll earn cash income from the leasing fees and crop sales — and any long-term appreciation on top of that.What to read nextSign up for our MoneyWise newsletter to receive a steady flow of actionable ideas from Wall Street’s top firms.US is only a few days away from an ‘absolute explosion’ on inflation — here are 3 shockproof sectors to help protect your portfolio‘There’s always a bull market somewhere’: Jim Cramer’s famous words suggest you can make money no matter what. Here are 2 powerful tailwinds to take advantage of todayThis article provides information only and should not be construed as advice. It is provided without warranty of any kind. Continue reading →

The booming recovery demonstrated we need more warehouses full of everything from laptops to garden gnomes, writes Christopher Smart.

Angela Weiss/AFP via Getty Images

About the author: Christopher Smart is chief global strategist and head of the Barings Investment Institute.

It’s like those nightmares where the bad guy stalks ever closer with a big club and you can’t scream or run. Here comes Fed Chair Jerome Powell brandishing the bluntest of instruments to deliver price stability, and all we can do is sit paralyzed and wonder how much it’s going to hurt. The only uncertainty about the next 12 months is whether the economy will be bad or very bad.

With an economic system that seems so brutal and unpredictable, is there any wonder at the rising political discontent? But there are, in fact, policies and practices that can help moderate wild inflationary swings and support the Fed’s efforts to restore stable prices more gently. Such measures may be of little assistance this time, given how the collapse in stocks already seems to be pricing in the worst, but they will limit the collateral damage from future cycles. Labor flexibility: Nimble companies are at the heart of America’s economic success, but managers are often too quick to shed workers in a downturn before scrambling to hire them back when demand returns. Selling low and buying high is the worst kind of economic stewardship, beyond the damage to operational efficiency and culture. It also clearly aggravates current inflation pressures as firms scoop up every last flight attendant, dockworker, and waiter.  In contrast, European companies kept employees attached to their jobs, paying a reduced salary with government support. American managers cringe at continental employment practices they see as heavy-handed and wasteful, but the European approach clearly worked in this crisis. Unemployment peaked much lower than in the U.S. after the onset of the pandemic and has now fallen to historical lows despite labor participation at its highest ever. Inflation also looked far more manageable, at least until the Russian invasion disrupted global commodity markets. Labor supply: With all the talk of post-pandemic retirements, America would also benefit from having more—and more flexible—workers.  Women are just now recovering their places in the workforce, having suffered disproportionately from lockdown layoffs and family care commitments. But the current 56.8% female participation rate lags countries like Canada, the United Kingdom, and Norway. It’s a complex issue, but adjustable schedules and more affordable child care would expand the supply of workers and dampen large, cyclical wage swings. Net migration, which has fallen substantially since 2016, would help, too. Not only do immigrants increase the labor supply, they are usually much more mobile and willing to move where the jobs need filling, all of which helps cool desperate bidding up of labor costs when firms get desperate.  Fiscal targeting: 2020’s shocking jobless spike also triggered huge stimulus flows to households, whether they needed them or not. Most did, but the extraordinary $2.5 trillion in excess balances sitting in U.S. bank accounts fueled a spending boom and consumer inflation unseen since the 1980s. With inflation still raging, the government is left with blunt instruments like gas tax holidays and tariff cuts that barely ease the pain while actually working against the Fed’s efforts to cool demand. Properly calibrating stimulus is hard even without a crisis, but the government needs better mechanisms for disbursing aid. This includes modernized Internal Revenue Service systems, improved means to reach those who don’t file tax returns, and faster payments plumbing. If distributed ledger technologies and digital dollars make it easier and cheaper to transfer money, disbursements can be better calibrated and reduced as recovery takes root.  Fatter inventories: Long gone are the days when business schools celebrated the virtues of “just in time” deliveries, which kept operations lean and profits high. The pandemic itself delivered a wake-up call to the risks of running out of personal protective equipment, but the booming recovery demonstrated we need more warehouses full of everything from laptops to garden gnomes. Obviously, firms can’t hold everything in stock, but they can develop more reliable supply lines to avoid the frenzied price increases for scarce items. This doesn’t mean moving all factories back to America, but it does include lining up more than one supplier and depending on more than one port of entry.  Competition policy: It’s too easy to blame corporate greed for high prices, as the Biden administration has, denouncing meat packers and oil drillers. Still, inflation has been aggravated in areas where there is less competition to keep prices low. Scholars have documented how the rise of corporate concentration in airlines, mobile telecommunications, and healthcare have driven prices higher relative to European equivalents.  Fixing this requires complex changes in law and policy to strike the right balance between consolidation that creates efficiencies and competition that keeps prices low. Even the slightest improvement on the margin, though, makes the Fed’s inflation battle that much easier.   Any adjustment that brings more flexibility to goods and services markets can help stabilize prices through cyclical swings. Any measure that alleviates the Fed’s burden also reduces the collateral damage of the adjustment in bankruptcies and joblessness. None of these reforms is automatic or easy, but without trying, we are merely bracing for the bad guy with the club. Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. 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Following inflation data showing worse-than-expected price increases in June, bond markets are now flashing signs of deeper investor concerns about recession.On Wednesday, the U.S. 10-year note yield slipped as much as 0.21% lower than the yield on the 2-year, the largest negative spread between the two securities since 2000.A yield curve inversion, in which short-dated bonds yield more than longer-dated ones, shows a reversal in typical risk attitudes, as investors usually expect more compensation in exchange for holding onto a security for longer.This same yield curve inversion happened in 2019, prior to the pandemic, and flashed again in April of this year. The 2-year/10-year spread has inverted before each of the last six U.S. recessions.The spread between the yield on the U.S. 10-year Treasury fell deeply below the yield. on the U.S. 2-year Treasury this month. Source: U.S. Treasury, Federal Reserve Bank of St. LouisBecause the U.S. 2-year yield generally tracks short-term rates, the recent rip higher in yields illustrates market pricing on more aggressive-than-expected interest rate increases from the Federal Reserve.The 2-year/10-year spread is the most closely watched among investors as these are among the most traded durations along the Treasury curve, but other tenors along the yield curve have also inverted: the 3-year and the 5-year Treasuries both have yields higher than the 7-year.After the curve briefly inverted in April 2022, the curve then re-steepened as the Fed began its process of raising interest rates, which had the impact of lifting longer-term rates.Now, however, that picture has reversed.Inflation data out this week showed a 9.1% year-over-year increase in consumer prices last month, which cast more uncertainty over the Fed’s ability to avoid recession without abruptly slamming the brakes on economic activity.“I don’t see an off-ramp to a soft landing anymore,” wrote SGH Macro Advisors Chief U.S. Economist Tim Duy on Wednesday. Duy described June’s Consumer Prince Index (CPI) as a “disastrous” report for the Fed, adding the central bank may have to get more aggressive on raising borrowing costs to depress demand — even if it risks job loss.“The deepening yield curve inversion is screaming recession, and the Fed has made clear it prioritizes restoring price stability over all else,” Duy added.Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System testifies before the House Committee on Financial Services June 23, 2022 in Washington, DC. (Photo by Win McNamee/Getty Images)The central bank had originally said it was debating between a 0.50% and a 0.75% move at the conclusion of its next meeting. But the hot inflation prints led to market repricing that risk, and as of Thursday afternoon placed a 44% probability on a 1.00% move on July 27.Fed trying to ‘rapidly catch up’Another read on inflation Thursday morning from the Producer Price Index (PPI) painted a similar picture as consumer data out Wednesday, with producer prices increasing by 11.3% year-over-year in June.Fed Governor Christopher Waller on Thursday said data so far had supported the case for a 0.75% move, but added that he could change his call depending on data from retail sales — which are due Friday morning — and housing.“If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down,” Waller said.Although Waller said markets appeared to show Fed “credibility” on addressing the economic challenge, the deepening yield curve inversion illustrates the tough task ahead as the Fed attempts to raise rates without squeezing companies to the point of layoffs.Christopher Waller testifies before the Senate Banking, Housing and Urban Affairs Committee during a hearing on their nomination to be member-designate on the Federal Reserve Board of Governors on February 13, 2020 in Washington, DC. (Photo by Sarah Silbiger/Getty Images)“The business cycle risks rise when the Fed is moving rapidly to catch up,” MKM Chief Economist Michael Darda told Yahoo Finance on Thursday.Darda added that recession risks could be “dramatically amplified” if yields on T-Bills, the shortest-dated U.S. Treasuries, start to show signs of inversion as well.“It’s a bit of a dicey situation,” Darda said.Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.Click here for the latest economic news and economic indicators to help you in your investing decisionsRead the latest financial and business news from Yahoo FinanceDownload the Yahoo Finance app for Apple or AndroidFollow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube Continue reading →

JPMorgan (JPM) Chief Executive Jamie Dimon doubled down on his earlier warning about the possibility of an economic downturn in comments on Thursday.The leader of the nation’s largest bank cautioned risks to the U.S. economy appear “nearer than they were before” in a call with reporters following the bank’s most recent quarterly report.“I’m simply saying, there’s a range of potential outcomes from a soft landing to a hard landing, driven by how much interest rates go up, the effectiveness of quantitative tightening, and defective, volatile markets,” Dimon said in a separate call with Wall Street analysts Thursday.The bank reported a wider-than-expected drop in profit of 28% during the second quarter to $8.6 billion, or $2.76 per share share. Analysts surveyed by Bloomberg anticipated the figure to come in at $8.9 billion. Meanwhile, trading revenue rose 15% to $7.8 billion, slightly below the 17% increase analysts expected.Dimon’s comments come as the Federal Reserve moves forward with its most aggressive monetary policy in decades and war in Ukraine continues to disrupt global markets.JP Morgan Chase CEO Jamie Dimon is seen on the video screen as U.S. President Joe Biden arrives for a hybrid virtual meeting with business leaders and CEOs about the debt limit at the White House in Washington, U.S., October 6, 2021. REUTERS/Kevin LamarqueThe remarks also come as JPMorgan readies its own balance sheet for a potential recession.Last quarter, the bank temporarily suspended share buybacks and set aside an additional $428 million in credit reserves to cover potential loan losses, pointing to “modest deterioration in the economic outlook.”The source of that deterioration comes from “two conflicting factors,” Dimon said in the company’s earnings release. While the U.S. economy continues to grow and the labor market and consumer spending hold up despite a backdrop of macroeconomic headwinds, geopolitical tensions caused by war in Ukraine, deteriorating consumer confidence, and “never-before-seen quantitative tightening” are expected to have negative consequences down the line.JPMorgan reported earnings one day after June inflation data showed consumer prices climbed at the fastest pace of the current inflation cycle, stoking fresh worries U.S. central bank officials may take even more aggressive action as economic growth shows signs of moderating.U.S. Federal Reserve Board Chair Jerome Powell testifies before a House Financial Services Committee hearing in Washington, U.S., June 23, 2022. REUTERS/Mary F. CalvertThe JPMorgan chief was among the first of Wall Street heavyweights to hint at a possible recession, sending a shockwave through financial markets last month when he predicted an economic “hurricane” was underway.Despite warnings, however, Dimon fell short of formally calling for a recession.“You can put any percentage you want on it — I’ve never changed my view,” he told reporters. “I’m not guessing what it is, I’ve always spoken about possibilities and probabilities, not about a single-point forecast.”Dimon and JPMorgan CFO Jeremy Barnum also emphasized the health of U.S. consumers, pointing to still solid savings accounts and higher discretionary spending on dining and experiences.Speaking to analysts, Dimon said consumers are in “great shape” if we enter a recession and hold far less leverage, particularly compared to the 2008 financial crisis and in 2020 when the coronavirus pandemic upended the economy.Morgan Stanley (MS) CEO James Gorman, in a slight contrast, appeared more relaxed in a call following the firm’s results Thursday morning, indicating a “deep and dramatic recession” is unlikely for the U.S and noting the threat of an economic contraction is a greater concern for Europe.Morgan Stanley revealed results that missed analyst expectations, dragged down primarily by a slump in investment banking revenue due to volatile market conditions.—Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnycClick here for the latest stock market news and in-depth analysis, including events that move stocksRead the latest financial and business news from Yahoo FinanceDownload the Yahoo Finance app for Apple or AndroidFollow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube Continue reading →

(Kitco News) The gold market tumbled $40 Thursday and briefly fell below the $1,700 an ounce level as markets began to price in an oversized 100-basis-point rate hike from the Federal Reserve at the July meeting.
Rate hike expectations were quickly re-priced after the latest U.S. inflation numbers shocked the markets, with the annual CPI number coming in at 9.1% and the yearly PPI rising 11.3% in June.
Before inflation data, markets were looking for a nearly 100% chance of a 75-basis-point hike at the Fed’s July 27 meeting, according to the CME FedWatch Tool. However, within 24 hours after the numbers were released, the expectations shifted to an 80.9% chance of a 100-basis-point hike. This would take the fed funds rate to a range of 2.50%-2.75%.
“Only yesterday morning, the market had just finally priced in a full 75bp rate hike in July for the first time. In a few hours, an above-consensus U.S. CPI reading and a surprise 100bp rate hike by the Bank of Canada changed the whole picture again. After these two events, markets have moved to seriously consider a 1.0% rate increase by the Fed in two weeks,” said Francesco Pesole, FX strategist at ING.
The Bank of Canada surprised the markets with a 100-basis-point hike on Wednesday, warning that inflation will remain elevated for the next three months. 
“The Bank of Canada made the leap into triple-digit hikes shortly after the U.S. CPI release, acknowledging in the process that it had underestimated inflation since Spring last year,” said Craig Erlam, senior market analyst at OANDA.
Gold faces many obstacles, but recession fears could help
The precious metal plunged below $1,700 an ounce Thursday, hitting 11-month lows and approaching pre-pandemic levels.
“A major capitulation event may be unfolding in gold,” said Daniel Ghali, senior commodity strategist at TD Securities. “Gold bugs are falling like dominoes. With prices challenging pre-pandemic levels, risks of a significant capitulation event in precious metals are growing.”
At the time of writing, August Comex gold futures were trading at $1.712.00, down 1.35% on the day.
“The yellow metal is feeling the heat from the inflation data and aggressive tightening in response. We could see its popularity improve once we see the peak in the inflation data, which we may now have in the U.S., but its tendency for upside surprises will leave investors cautious,” said Erlam.
BREAKING: #Gold extends losses to trade sharply down and at 11-mo. low as USDX, bond yields sharply up today and crude oil solidly down, at 3-mo. low. August gold down $37.50 at $1,698.00. #kitconews pic.twitter.com/LoJ42QVa93— Kitco NEWS (@KitcoNewsNOW) July 14, 2022
Downward price pressures have been rising in gold as the U.S. dollar index continues to trade at 20-year highs, yields advance, and oil sells off, according to analysts.
“Volatility around EUR/USD parity (which was hit yesterday) should continue to be elevated and to impact other USD crosses. We think that the current re-pricing higher in Fed rate expectations can – along with other factors – keep the dollar supported at this stage, and the risk of a more decisive break below 1.000 in EUR/USD can strengthen the greenback across the board,” Pesole added.
A break below $1,700 is still very likely, with the next support level at $1,680 an ounce, added Erlam. “[But] once the peak is in place and we see signs of inflation pressures retreating, we could see gold back in favor as the economy drifts into recession.”
Ghali noted that a drop below pre-pandemic levels, which is between $1,650 and $1,700 an ounce, could trigger even a bigger selloff in the precious metal.
“Pressure is building towards a capitulation if prices trade below their pandemic-era entry levels. In a liquidation vacuum, these massive positions are most vulnerable, which suggests the yellow metal remains prone to further downside still,” he said. Continue reading →

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(Kitco News) – The paper gold market has struggled to find consistent bullish momentum as prices dropped nearly 7% between April and June. However, the physical market saw solid growth, according to the latest report from the Royal Mint.
Thursday, the British mint said that sales of its gold bullion coins increased by 8% quarter-over-quarter. At the same time, silver bullion sales increased 47% compared to the sales in the first three months of 2022.
The mint added that it continues to see strong international sales, with specific demand growing among American consumers.
“Internationally, growth has also been seen in all three metals, with a 52% increase in the amount of gold ounces being sold, a 58% increase in silver ounces sold, and a 67% increase in platinum,” the Royal Mint said in a statement.
“We are famous in the U.K. for making coins and bars from precious metals and have developed a strong international base of investors. It’s encouraging to see such strong international sales, particularly from the U.S. and we look forward to expanding globally, providing a range of products to appeal to investors,” added Andrew Dickey, director of precious metals at The Royal Mint.
The latest report from the British mint appears to be bucking the trend of slowing sales among significant mints. The U.S. Mint sold 315,000 ounces of gold during the second quarter, down 26% from the first quarter.

The U.S. Mint saw a demand drop sharply in June as it sold 52,000 ounces, according to the mint’s revised data.
Meanwhile, the Perth Mint sold 244,737 ounces of gold in the second quarter, down 6% from 261,357 ounces sold in the first quarter.
Some analysts have said that the drop in bullion demand reflects nuances in the marketplace as higher premiums are pricing consumers out of the market. Premiums are high because of a supply and demand imbalance as bullion investors are holding on to the physical metal.
At the same time, analysts have said that the sharp drop in gold prices is expected to lead to an increase in physical demand. Thursday, gold prices dropped below $1,700 an ounce, hitting a nearly one-year low. Continue reading →

First-time unemployment claims continued to creep up last week, rising to their highest level since November. Initial jobless claims rose by 9,000 to 244,000 in the week ended July 9, coming in well above economists’ expectations of 235,000 claims, according to FactSet.

The four-week moving average was 235,750, an increase of 3,250 to the previous week’s average. The average has been gradually inching up since April, as the Federal Reserve moves to tighten monetary policy in a bid to curb inflation. “While we think the risk is for further increases in claims as economic growth slows, we don’t anticipate a sharp rise in new claims any time soon,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. Continuing claims, or the number of people already receiving unemployment benefits, were 1.331 million for the week ended July 2, a decrease of 41,000 from the previous week. This figure was below consensus estimates for 1.355 million, suggesting that while the labor market may be loosening up, it remains fairly strong. And indeed, the unemployment rate held steady at 3.6% in May for the fourth straight month, according to the Labor Department. The economy added 372,000 jobs in June. The ongoing strength of the labor market likely will encourage the Fed to keep aggressively hiking rates, especially given that inflation has soared the most in four decades. The consumer price index rose at a 9.1% annual pace in June, prompting 83% of Wall Street traders to speculate that the Fed could raise interest rates by as much as 100 basis points, or 1%, at the central bank’s July 27 meeting, according to the CME FedWatch Tool. Write to Sabrina Escobar at sabrina.escobar@barrons.com Continue reading →