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Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of a massive rally in 2021.
While there are parallels between today’s meltdown and crashes past, a lot has changed since the last major bear market in crypto.
The crypto market has been flooded with debt thanks to the emergence of centralized lending schemes and so-called “decentralized finance.”
The collapse of the algorithmic stablecoin terraUSD and the contagion effect from the liquidation of hedge fund Three Arrows Capital, highlighted how interconnected projects and companies were in this cycle.

There’s something about the latest crypto crash that makes it different from previous downturns.
Artur Widak | Nurphoto | Getty Images

The two words on every crypto investor’s lips right now are undoubtedly “crypto winter.”
Cryptocurrencies have suffered a brutal comedown this year, losing $2 trillion in value since the height of a massive rally in 2021.

Bitcoin, the world’s biggest digital coin, is off 70% from a November all-time high of nearly $69,000.
That’s resulted in many experts warning of a prolonged bear market known as “crypto winter.” The last such event occurred between 2017 and 2018.
But there’s something about the latest crash that makes it different from previous downturns in crypto — the latest cycle has been marked by a series of events that have caused contagion across the industry because of their interconnected nature and business strategies.

From 2018 to 2022

Back in 2018, bitcoin and other tokens slumped sharply after a steep climb in 2017.
The market then was awash with so-called initial coin offerings, where people poured money into crypto ventures that had popped up left, right and center — but the vast majority of those projects ended up failing.

“The 2017 crash was largely due to the burst of a hype bubble,” Clara Medalie, research director at crypto data firm Kaiko, told CNBC.
But the current crash began earlier this year as a result of macroeconomic factors including rampant inflation that has caused the U.S. Federal Reserve and other central banks to hike interest rates. These factors weren’t present in the last cycle.
Bitcoin and the cryptocurrency market more broadly has been trading in a closely correlated fashion to other risk assets, in particular stocks. Bitcoin posted its worst quarter in more than a decade in the second quarter of the year. In the same period, the tech-heavy Nasdaq fell more than 22%.
That sharp reversal of the market caught many in the industry from hedge funds to lenders off guard.

As markets started selling off, it became clear that many large entities were not prepared for the rapid reversal

Clara Medalie
Research Director, Kaiko

Another difference is there weren’t big Wall Street players using “highly leveraged positions” back in 2017 and 2018, according to Carol Alexander, professor of finance at Sussex University.
For sure, there are parallels between today’s meltdown and crashes past — the most significant being seismic losses suffered by novice traders who got lured into crypto by promises of lofty returns.
But a lot has changed since the last major bear market.
So how did we get here?

Stablecoin destabilized

TerraUSD, or UST, was an algorithmic stablecoin, a type of cryptocurrency that was supposed to be pegged one-to-one with the U.S. dollar. It worked via a complex mechanism governed by an algorithm. But UST lost its dollar peg which led to the collapse of its sister token luna too.
This sent shockwaves through the crypto industry but also had knock-on effects to companies exposed to UST, in particular hedge fund Three Arrows Capital or 3AC (more on them later).

“The collapse of the Terra blockchain and UST stablecoin was widely unexpected following a period of immense growth,” Medalie said.

The nature of leverage

Crypto investors built up huge amounts of leverage thanks to the emergence of centralized lending schemes and so-called “decentralized finance,” or DeFi, an umbrella term for financial products developed on the blockchain.
But the nature of leverage has been different in this cycle versus the last. In 2017, leverage was largely provided to retail investors via derivatives on cryptocurrency exchanges, according to Martin Green, CEO of quant trading firm Cambrian Asset Management.
When the crypto markets declined in 2018, those positions opened by retail investors were automatically liquidated on exchanges as they couldn’t meet margin calls, which exacerbated the selling.
“In contrast, the leverage that caused the forced selling in Q2 2022 had been provided to crypto funds and lending institutions by retail depositors of crypto who were investing for yield,” said Green. “2020 onwards saw a huge build out of yield-based DeFi and crypto ‘shadow banks.'”
“There was a lot of unsecured or undercollateralized lending as credit risks and counterparty risks were not assessed with vigilance. When market prices declined in Q2 of this year, funds, lenders and others became forced sellers because of margins calls.”

Read more about tech and crypto from CNBC Pro

A margin call is a situation in which an investor has to commit more funds to avoid losses on a trade made with borrowed cash.
The inability to meet margin calls has led to further contagion.

High yields, high risk

At the heart of the recent turmoil in crypto assets is the exposure of numerous crypto firms to risky bets that were vulnerable to “attack,” including terra, Sussex University’s Alexander said.
It’s worth looking at how some of this contagion has played out via some high-profile examples.
Celsius, a company that offered users yields of more than 18% for depositing their crypto with the firm, paused withdrawals for customers last month. Celsius acted sort of like a bank. It would take the deposited crypto and lend it out to other players at a high yield. Those other players would use it for trading. And the profit Celsius made from the yield would be used to pay back investors who deposited crypto.
But when the downturn hit, this business model was put to the test. Celsius continues to face liquidity issues and has had to pause withdrawals to effectively stop the crypto version of a bank run.
“Players seeking high yields exchanged fiat for crypto used the lending platforms as custodians, and then those platforms used the funds they raised to make highly risky investments – how else could they pay such high interest rates?,” said Alexander.

Contagion via 3AC

One problem that has become apparent lately is how much crypto companies relied on loans to one another.
Three Arrows Capital, or 3AC, is a Singapore crypto-focused hedge fund that has been one of the biggest victims of the market downturn. 3AC had exposure to luna and suffered losses after the collapse of UST (as mentioned above). The Financial Times reported last month that 3AC failed to meet a margin call from crypto lender BlockFi and had its positions liquidated.
Then the hedge fund defaulted on a more than $660 million loan from Voyager Digital.
As a result, 3AC plunged into liquidation and filed for bankruptcy under Chapter 15 of the U.S. Bankruptcy Code.

Three Arrows Capital is known for its highly-leveraged and bullish bets on crypto which came undone during the market crash, highlighting how such business models came under the pump.
Contagion continued further.
When Voyager Digital filed for bankruptcy, the firm disclosed that, not only did it owe crypto billionaire Sam Bankman-Fried’s Alameda Research $75 million — Alameda also owed Voyager $377 million.
To further complicate matters, Alameda owns a 9% stake in Voyager.
“Overall, June and Q2 as a whole were very difficult for crypto markets, where we saw the meltdown of some of the largest companies in large part due to extremely poor risk management and contagion from the collapse of 3AC, the largest crypto hedge fund,” Kaiko’s Medalie said.
“It is now apparent that nearly every large centralized lender failed to properly manage risk, which subjected them to a contagion-style event with the collapse of a single entity. 3AC had taken out loans from nearly every lender that they were unable to repay following the wider market collapse, causing a liquidity crisis amid high redemptions from clients.”

Is the shakeout over?

It’s not clear when the market turbulence will finally settle. However, analysts expect there to be some more pain ahead as crypto firms struggle to pay down their debts and process client withdrawals.
The next dominoes to fall could be crypto exchanges and miners, according to James Butterfill, head of research at CoinShares.
“We feel that this pain will spill over to the crowded exchange industry,” said Butterfill. “Given it is such a crowded market, and that exchanges rely to some extent on economies of scale the current environment is likely to highlight further casualties.”
Even established players like Coinbase have been impacted by declining markets. Last month, Coinbase laid off 18% of its employees to cut down on costs. The U.S. crypto exchange has seen trading volumes collapse lately in tandem with falling digital currency prices.
Meanwhile, crypto miners that rely on specialized computing equipment to settle transactions on the blockchain could also be in trouble, Butterfill said.
“We have also seen examples of potential stress where miners have allegedly not paid their electricity bills, potentially alluding to cash flow issues,” he said in a research note last week.
“This is likely why we are seeing some miners sell their holdings.”
The role played by miners comes at a heavy price — not just for the gear itself, but for a continuous flow of electricity needed to keep their machines running around the clock.

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(Bloomberg) — Federal Reserve officials may debate a historic one percentage-point rate hike later this month after another searing inflation report piled pressure on the central bank to act.Most Read from Bloomberg“Everything is in play,” Atlanta Fed President Raphael Bostic told reporters in St. Petersburg, Florida, on Wednesday after US consumer prices rose a faster-than-forecast 9.1% in the year through June. Asked if that included raising rates by a full percentage point, he replied, “it would mean everything.Investors bet that the Fed is more likely than not to raise interest rates by 100 basis points when it meets July 26-27, which would be the largest increase since the Fed started directly using overnight interest rates to conduct monetary policy in the early 1990s. Americans are furious over high prices, and critics blame the Fed for its initial slow response.Cleveland Fed President Loretta Mester, speaking Wednesday evening in an interview on Bloomberg Television, declined to say if she favored going bigger at the July meeting, noting there were important data releases between now and then. But she said there was “no reason” for raising rates by less than the 75 basis points that policy makers delivered last month.“What I take from the report, and it was uniformly bad — there was no good news in that report at all — is that inflation remains at an unacceptably high level,” she said. “We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner.”San Francisco Fed chief Mary Daly, speaking in a separate interview with the New York Times late Wednesday, said that “My most likely posture is 0.75, because of the data I’ve seen,” adding that she had expected the CPI number to be high: “I saw that data and thought: This isn’t good news. Wasn’t expecting good news.”The Fed has turned aggressively against inflation, after being blamed for its initially slow response, roiling financial markets and increasing the risk that its actions could tip the US economy into recession. Both Bostic and Mester pushed back against the idea of a trade-off between inflation and employment, arguing that they had to deliver price stability, even if that hurts the labor market.What Bloomberg Economics Says…“The Fed is right to worry about the unmooring of inflation expectations — and this report raises the chance of an even larger rate hike than 75 basis points down the line.”– Anna Wong and Andrew Husby, economistsFor the full note, click hereGiven the acceleration in monthly inflation, economists at Nomura Securities International now expect a full percentage-point increase in the Fed’s benchmark rate at the upcoming policy meeting.“Incoming data suggests the Fed’s inflation problem has worsened, and we expect policy makers to react by scaling up the pace of rate hikes to reinforce their credibility,” Nomura’s Aichi Amemiya, Robert Dent and Jacob Meyer, said in a note.Fed Chair Jerome Powell told reporters last month after the central bank raised rates by 75 basis points, to a range of 1.5% to 1.75%, that either a 50 or 75 basis-point increase was likely in July. A majority of his colleagues since then have either echoed his line or endorsed the bigger move.Fed Governor Christopher Waller is scheduled to speak on Thursday, while Bostic and his St. Louis colleague James Bullard both have events on Friday. After that officials enter their pre-meeting blackout period.Global TighteningCentral banks globally are confronting unprecedented inflation, prompting historic rate hikes from Hungary to Pakistan. The Bank of Canada on Wednesday increased rates by a surprise full percentage point amid fears that decades-high price pressures are becoming entrenched.Brett Ryan, senior US economist at Deutsche Bank AG, said it made sense to price in some risk of a larger Fed move, but saw it as unlikely without explicit communication from the central bank.“The hawks had to have agreed to the guidance of 50 to 75, with the understanding that if we got an upside print, 75 would be the number,” he said. “They have time to communicate if they want to put that message out there.”The US central bank has pivoted to aggressive policy tightening to confront the highest inflation in 40 years. They raised rates by 75 basis points last month — the largest increase since 1994 — despite previously signaling that they were on track for a smaller half-point move.“You have to put 100 on the table for July,” said Andrew Hollenhorst, Citigroup chief US economist. “Everybody should be quite cautious about calling peak inflation — a few months ago the peak was supposed to be 8.3%.”Fed officials have said they want to push policy into restrictive territory, to a range of 3.25 to 3.5% by the end of this year, according to the median projection from the quarterly economic projections released in June. Futures markets Wednesday showed investors pricing in an even higher 3.5% to 3.75% range by year end.The Fed’s abrupt change to a 75 basis-point increase last month came on the back of a preliminary survey showing consumer expectations for future inflation were rising.Subsequent updates to the data, which came after the Fed’s meeting, erased most of that uptick, but preliminary July figures, expected Friday, may provide policy makers with more ammunition to super-size this month’s hike.Inflation expectations are particularly concerning to Powell and his colleagues, who are trying to avoid a 1970s-style price spiral.“After what happened in June, I do not rule anything out,’ said Stephen Stanley, chief economist at Amherst Pierpont Securities. “I had been thinking that the Fed would decelerate to a 50-basis-point-per-meeting pace beginning in September, but if the next two monthly inflation numbers look like May’s and June’s, all bets are off.”(Updates with Daly comment in sixth paragraph.)Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. 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(Bloomberg) — Big hedge funds like Moore Capital Management and Tudor Capital Corp. were so important to JPMorgan Chase & Co. that its precious-metals traders routinely manipulated gold and silver markets to get the best prices on client orders, a former trader for the bank told a Chicago jury.Most Read from Bloomberg“They brought in a huge volume of trading, which made the bank a lot of money and our team a lot of money,” John Edmonds, a former trader on JPMorgan’s precious metals desk, said Wednesday when asked about Tudor. He made similar statements about Moore Capital. “Knowing that they’re trading in the market and what they’re doing” was valuable information for the bank, he said.Edmonds worked on the JPMorgan precious-metals desk for more than a decade and pleaded guilty in 2018 to conspiracy and commodities fraud related to “spoof” trading. He is testifying against his former boss, Michael Nowak, the longtime head of the trading desk, gold trader Gregg Smith and hedge funds salesman Jeffrey Ruffo. They’re accused of thousands “spoof” trades in which huge orders were placed and quickly canceled in the hope of moving prices up or down so they could complete desired trades.Prosecutors allege the traders were influenced by the needs of hedge fund clients, whom at times were looking to buy or sell millions of dollars in gold or silver in a matter of seconds or minutes. Edmonds said that when a client needed an order filled, everyone on the desk would stop trading so as not to “get in the way” of filing that order. Edmonds said he’d regularly watch Nowak or Smith use spoof trades to fill those order.Read More: JPMorgan Gold Desk ‘Spoofing’ Cheated Market, Ex-Trader SaysJurors were shown instant messages between Ruffo and traders at Moore Capital and Tudor, as well as Smith’s trading records around those communications as evidence of improper trading in gold and silver futures.Edmonds, who sat near Ruffo and Smith, said the hedge fund clients were “price sensitive” and concerned about even small differences in prices of gold and silver given the massive size of their orders.One example from prosecutors was an order on Dec. 12, 2011 by Moore Capital, which sought to sell 1 million ounces of silver at $31 an ounce. Smith placed orders to buy 1,190 futures contracts, each for 5,000 ounces of silver, data presented to the jury showed. Edmonds said that was consistent with a spoof trade designed to drive the price higher, where Smith wanted to sell. Minutes later, Smith sold 200 contracts, which is the equivalent to 1 million ounces, and canceled his buy orders.The jury also heard about a Jan. 18, 2012, gold trade on behalf of Tudor where Ruffo was asked to unload more than 900 contracts. As the price of gold decreased around 8 a.m., Tudor’s James Phelan wrote to Ruffo, “tell Gregg to wake up,” according to a chat log. Shortly thereafter, Smith started entering orders on the buy side. “He was trying to move the market higher so he can sell at a higher price for an important client,” Edmonds said.Edmonds has been on the witness stand since Tuesday. He was being cross-examined by defense lawyers late Wednesday afternoon.The case is US v. Smith et al, 19-cr-00669, US District Court, Northern District of Illinois (Chicago)Spoofing Is a Silly Name for Serious Market Rigging: QuickTakeMost Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading →

“Staggering.” “Ugly.” “Brutal.” And …. “out-of-date.”Those are some of the words that investors, analysts — and even President Joe Biden — used to sum up the June consumer price index report released on Wednesday. The report produced a 9.1% annual headline rate, an almost 41-year high, that surprised financial markets by coming in even hotter than either economists or inflation-derivatives traders had expected. Falling gasoline prices since mid-June still give some in financial markets and the administration hope that July’s inflation data won’t look nearly so bleak, but there’s a major caveat: Even after factoring… Continue reading →

LONDON (Reuters) – Stocks slipped on Wednesday and the euro lurked just above parity against the dollar, as traders waited to see if U.S. inflation data later bolsters the case for another supersized Federal Reserve rate hike this month. Recession worries meant Europe stumbled out the blocks after a relatively steady session in Asia Pacific where South Korea and New Zealand had jacked up their rates again.Germany’s DAX and Italy’s FTSEMIB were both down over 1.2% early on. London’s FTSE was not far behind (EU), while the euro teetered at $1.0025 as gas and oil prices rose again. [/FRX][O/R]Copper, which is attuned to global growth, had hit a 20-month low too. [MET/L] UK economic growth data delivered an unexpected rise but investors were far more focused on whether the U.S. inflation numbers later show it pushing toward 9%, which would be its highest since 1981. “Markets have been held up a bit in terms of parity in euro-dollar but we still have an incredible number of moving parts,” Societe Generale (OTC:SCGLY)’s Kit Juckes said, explaining that the higher the U.S. inflation numbers, the clearer it will be that the Fed will crack on with rate hikes. It increased them by a supersized 75 basis points at its last meeting, its first move of that scale since 1994. “If that (high inflation reading) happens today, that could get the bond market a bit nervous again, invert the U.S. yield curve more and send the euro decisively through parity,” Juckes said.Underscoring the global inflation concerns, South Korea’s central bank on Wednesday raised rates by 50 basis points, the biggest increase since the bank adopted its current policy system in 1999, and New Zealand’s central bank also increased rates by the same amount for the third time in a row to 2.5%. It left fixed income markets in a holding pattern. German government bond yields edged up to 1.15%, after falling sharply for two days, while 10-year U.S. Treasuries hovered at 2.97% as they also digested the IMF’s latest U.S. growth forecast cut. Bond market recessionary warning signs are now flashing “with growing alarm” Deutsche Bank (ETR:DBKGn)’s Jim Reid said. One in particular is the 2 year/10 year U.S. Treasury curve, which has inverted before every one of the last 10 U.S. recessions, and remains near its most inverted of this cycle so far at -8.5 bps. Graphic: Euro pulled towards parity, https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnegjwvq/Pasted%20image%201657616294404.png PARITY WATCHWall Street futures were pointing to marginally higher starts for the main S&P 500, Nasdaq and Dow Jones indexes after a late slump on Tuesday.Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.5%, snapping two straight days of losses and having slumped to its lowest in two years the day before. Taiwanese stocks led the gains after Taiwan’s finance ministry said on Tuesday evening it would activate its stock stabilisation fund. The market had fallen to a 19-month low that day. Japan’s Nikkei finished up 0.5% after it had lost nearly 2% the previous day.”Sharp (OTC:SHCAY) weakness in oil prices in July suggests that June’s (inflation) may mark a peak, however. If so, the most dynamic phase of Fed tightening could conclude with a 75bps rate rise on 27 July,” analysts at ANZ said. “However, our expectation is that underlying strength in core inflation and still deeply negative real policy rates means 50bps rate rises will still be appropriate after the summer.” Worries that higher rates could bring the global economy to a standstill, or even worse into recession, has been the key driver behind both the 20% slump in world stocks this year and the surge in the safe-haven U.S. dollar.The euro, which is down over 11% since January was last at $1.0025, as investors remained focused on whether it would fall below one U.S. dollar for the first time since 2002. It dropped to just a whisker away on Tuesday, falling as low as $1.00005. The dollar was also firm on other peers, and its index measure against major rivals was holding solidly at 108.27. Oil prices paused their overnight declines. Brent crude was little changed at $99.60 a barrel with U.S. West Texas Intermediate crude at $95.89. Leading cryptocurrency bitcoin was up 0.23% and looked on track to snap a three-day losing streak, though at $19,478.89 was still trading below the key psychological $20,000 mark. Continue reading →

Investing.com — China’s exports grew at their fastest rate this year in June, as the easing of lockdowns in the key hub of Shanghai eased the bottlenecks around the world’s largest port and allowed producers to restore operations to normal.Exports were up 17.9% on the year, an acceleration from 16.9% in the year through May and well ahead of consensus forecasts for 12.0% growth. Imports, by contrast, grew only 1.0% on the year, and have now effectively stagnated in year-on-year terms for the last four months. The data point to an improvement in the conditions for global supply chains that have played such a large part in driving inflation to 40-year highs in Europe and North America this year. They are consistent with a sharp fall in other proxies for supply chain pressures, including the Baltic Dry Index for freight shipping, which has fallen some 40% since late May as Shanghai lifted its COVID-19 restrictions. Shanghai’s foreign trade alone rose 36% from May, the Global Times quoted customs official Li Kuiwen as saying.However, the import numbers point to a continued cooling off of activity: base metal imports, which drive the key manufacturing and industrial sectors,  were broadly lower – as were imports of fossil fuels, against a backdrop of surging prices. Iron ore imports fell 3.8% on the year to 89 million tons, while copper ore imports fell 5.9%, and Coal imports fell 7.6%. Crude oil imports were down over 21%. The construction and real estate development sectors, which account for the largest part of base metal demand, remain in crisis, as the country’s real estate bubble slowly deflates. In recent weeks, more Chinese developers have missed payments on their debts, while Bloomberg on Wednesday cited Citigroup research saying that homebuyers in some 22 cities have decided to stop paying their mortgages, protesting against project delays and a drop in property prices.Nor has the threat of renewed lockdowns entirely vanished. Shanghai authorities have ordered two rounds of mass testing for most of the city’s 25 million residents this week in response to signs of a new outbreak. Wednesday’s data, however, suggested that the number of cases may be leveling out, reducing the need for more extreme restrictions on business life. All the 55 new local cases reported for July 12 were discovered among people already under isolation orders, Reuters reported. As such, the danger of community spread appears to have receded. Continue reading →

Investing.com – Gold was down on Wednesday morning in Asia. U.S. strengthened ahead of U.S. inflation data for June, which is expected to hit a record high.Gold futures inched up 0.06% to $1,726.00 by 11:36 PM ET (3:36 AM GMT). The dollar, which normally moves inversely to gold, edged up on Wednesday morning.Benchmark U.S. 10-year Treasury yields rose, denting the demand for non-yielding gold.Investors now await U.S. Consumer Price Index (CPI) for more clues on the U.S. Federal Reserve’s monetary policy path, which is due later in the day. Analysts predicted that the print would hit a pandemic peak in June from a year earlier, the largest jump since 1981.The CPI data could fuel investors’ expectations for a 75-basis-point interest rate hike by the U.S. Federal Reserve later this month, as the U.S. central bank seeks to tame inflation.SPDR Gold Trust (P:GLD), the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.17 to 1,021.52 tons on Tuesday from 1,023.27 tons on Monday.In Asia Pacific, South Korea’s central bank joined its global peers and delivered earlier in the day a historic half-point interest rate hike to bring down soaring prices.In other precious metals, silver fell 0.30%. Platinum jumped 0.36% while palladium edged down 0.11%. Continue reading →

U.S. stocks finished lower on Tuesday for a second day as investors braced for the latest update on what has been the worst bout of inflation to hammer the U.S. economy in four decades. How stocks traded
The Dow Jones Industrial Average
DJIA,
-0.62%
retreated 192.51 points, or 0.6%, to 30,981.33.

The S&P 500
SPX,
-0.92%
was down 35.63 points, or 0.9%, 3,818.80.

The Nasdaq Composite
COMP,
-0.95%
shed 107.87 points, or 1%, to 11,264.73

On Monday, the Dow fell 164 points, or 0.5%, while the S&P 500 declined 1.2% and the Nasdaq Composite dropped 2.3%.

What drove markets After a fleeting rebound off the 18-month lows the S&P 500 index touched in mid-June, the mood was again cautious on Tuesday as the strong dollar weighed on sentiment ahead of Wednesday’s consumer-price index for June, while the second-quarter corporate earnings reporting season starts on Thursday. With the inflation report looming large on the economic calendar, investors appear reluctant to open new positions ahead of the data, even as the White House has preemptively dismissed the report as already out of date. “The overarching driver of trade today is the CPI report tomorrow and investors’ reluctance to get out directionally one way or the other in advance of it,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. See: U.S. inflation is still rising. Can it reach 9%? Traders remain wary about the prospects for corporate profits also amid signs of slowing global economic growth, although declining commodity prices have spurred hopes that the Federal Reserve might be able to transition back to cutting interest rates as soon as next year. “There’s been some talk of peak inflation in the US due — among other reasons — to a fall in some agriculture food prices. After all, it was the soaring prices of wheat, corn and other soft commodities, as well as energy, that have boosted inflation so much over the past year or so,” said Fawad Razaqzada, financial markets analyst at City Index. “With these prices coming down a little, this is clearly some good news — and some light at the end of the tunnel.” The drop in commodity prices, however, may not be reflected in the June consumer price index due Wednesday, he said. “So, just like May, there is a risk that inflation could overshoot again. If so, this will likely trigger fresh gains for the dollar.” See also: ‘The good, the bad and the ugly’: here’s how the market might react to the latest U.S. inflation data As for the dollar, investors are worried about how a surging U.S. currency may impact corporate earnings, Luschini added. “Investors are thinking about what it means in terms of tightening financial conditions, plus the fact that it will work to be counterproductive to earnings,” Luschini added. The dollar has soared versus major rivals in 2022, but pulled back from a 20-year high for the ICE U.S. Dollar Index
DXY,
+0.12%
Tuesday after the euro
EURUSD,
-0.02%
came tantalizingly close to hitting parity versus the U.S. currency for the first time in around two decades. Read: Euro pauses at parity. But what comes next? Big U.S banks will kick off the second quarter earnings reporting season proper in coming days, with JPMorgan Chase
JPM,
+0.10%
and Morgan Stanley
MS,
+0.16%
on Thursday, and Citigroup
C,
-0.13%
and Wells Fargo
WFC,
-0.48%
on Friday.

Expectations are for limited earnings growth. Analysts are forecasting an average 4.3% increase for companies in the S&P 500, which would be the weakest since the end of 2020, according to FactSet. Three months ago analysts were projecting growth of 5.9%, and the difference reflects building concerns that rampant inflation, and the consequent higher borrowing costs imposed by central banks to counteract it, have caused profit margins to compress. As for economic data Tuesday, the National Federation of Independent Business said its small-business optimism index fell 3.6 points to 89.5, the lowest level since the first few months of the pandemic in 2020. The index has declined during five of the past six months. Meanwhile, 34% of survey respondents said inflation is their primary concern, the highest percentage since 1980 — a sign that inflation has continued to hurt small businesses, which don’t share the pricing power of large corporations. The U.S. 10-year Treasury yield
TMUBMUSD10Y,
2.976%
fell 3.2 basis points to 2.958% as traders sought the relative safety of government debt. But the rally in Treasuries caused the closely followed spread between the two-year and 10-year notes to shrink to minus 8.5 basis points, its deepest inversion since Feb. 27, 2007. Companies in focus
Shares of PepsiCo Inc.
PEP,
-0.57%
finished 0.6% lower despite reporting fiscal second-quarter profit and revenue that were well above expectations, and which affirmed the beverage and snack giant’s full-year outlook.

Peloton
PTON,
+3.70%
shares climbed 3.7% after the fitness company announced it will outsource its manufacturing.

Cloud-computing giant ServiceNow Inc.
NOW,
-12.74%
fell sharply on Tuesday after its CEO discussed economic headwinds affecting the business during an interview with CNBC’s Jim Cramer. Shares were down 12.7%. Salesforce Inc.,
CRM,
-4.61%
a competitor and Dow component, appeared to decline in sympathy, with its shares falling 4.6%.

Boeing Company
BA,
+7.42%
shares surged more than 7% after reporting strong deliveries data for the second half of last year.

Other markets
Wall Street’s overnight dive left Asian bourses on the back foot. Hong Kong’s Hang Seng HK:HSI fell 0.9% and the Nikkei 225 JP:NIK in Japan slumped 1.8% after a measure of inflation hit 9.2%, higher than expected. The Stoxx Europe 600 XX:SXXP rose 0.5%, while the FTSE 100
UKX,
+0.18%
gained 0.2% in London.

The stronger dollar rippled across markets, pressuring products denominated in the buck. WTI crude CL.1 fell fell nearly 8% to its lowest level in three months. Gold GC00 futures settled 0.4% lower.

Bitcoin BTCUSD once again fell below $20,000, dropping 2.7% as of Tuesday afternoon. Continue reading →

Gold futures posted a loss for a second straight session on Tuesday, holding ground at their lowest finish since late September of last year. “The precious metal has been smothered by an appreciating dollar and expectations over the [Federal Reserve] maintaining an aggressive stance towards higher interest rates,” said Lukman Otunuga, manager, market analysis at FXTM. “The precious metal looks depressed and could be in store for more pain if the pending U.S. CPI report meets or exceeds market expectations” when it’s released Wednesday, he said. August gold
GCQ22,
-0.42%
fell $6.90, or 0.4%, to settle at $1,724.80 an ounce. Prices based on the most-active contract settled at the lowest since Sept. 29, 2021, FactSet data show. Continue reading →

(Bloomberg) — European stocks plunging 20%. Junk credit spreads widening past 2020 crisis levels. The euro sinking to just 90 cents.Most Read from BloombergThe predictions are ominous for financial markets if Russia cuts off all the gas supply to Europe.Shipments are currently running at reduced levels with the main pipeline shut for a 10-day maintenance, and fears are building over whether Moscow will turn the tap back on. Many investors are asking: How bad could this get?To that question, strategists across Wall Street have tried to put numbers on a scenario that would be unthinkable in normal times. There are so many variables, such as the length of any shutdown, the extent of supply cuts, and how far countries would go to ration energy, that anyone’s prediction is a guess at best.How Europe Became So Dependent on Putin for Its Gas: QuickTake“The big unknown is how the shock that starts in Germany, Poland and other central European countries will reverberate throughout the rest of Europe and the world,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “There simply is no substitute available for Russian gas.”In an analysis this week, UBS Group AG economists laid out a detailed vision of what they see happening if Russia halts gas deliveries to Europe. It would reduce corporate earnings by more than 15%. The market selloff would exceed 20% in the Stoxx 600 and the euro would drop to 90 cents. The rush for safe assets would drive benchmark German bund yields to 0%, they wrote.“We stress that these projections should be seen as rough approximations and by no means as a worse-case scenario,” wrote Arend Kapteyn, chief economist at UBS. “We could easily conceive economic disruptions that lead to more negative growth outcomes.”Markets are already pricing in some of the damage. The euro is at a two-decade low and on the brink of dollar parity. German stocks have lost 11% since June. German gas giant Uniper SE is the biggest corporate casualty, with the stock plunging 80% this year as it seeks a government bailout.To be sure, many investors say there’s reason to believe Russia will turn gas supply back on when maintenance on the Nord Stream 1 pipeline ends on July 21. But, as UBS points out, if European countries start voluntary gas rationing to fill up on storage, the hit to economic growth will be severe.“Europe is currently being caught in a vicious circle,” said Charles-Henry Monchau, chief investment officer at Banque Syz. Higher energy prices are hurting Europe’s economy, driving the euro lower. In turn, the weaker euro makes energy imports even more expensive, he said.The other worry is that central banks won’t be able to do much to help the economy with inflation already running at decade-highs, said Prashant Agarwal, a portfolio manager at Pictet Asset Management.“I am not sure central bank tools work in this scenario,” he said. “In the past, they had leeway to address the situation because inflation was low.”Here’s a round-up of other strategist views:BNP Paribas SAA full-blown gas disruption would drive the Euro Stoxx 50 to 2,800, about a 20% plunge from current levels, wrote strategists including Sam Lynton-Brown and Camille de Courcel.They recommend hedges, such as high-quality companies and buying options skew on the European stock index. Auto, industrial and chemical industries will be under pressure, they wrote.Nomura International PlcCurrency strategist Jordan Rochester has been urging clients to short the common currency since April. If Nord Stream 1 doesn’t resume operations, the euro may drop to 90 cents over the winter, he wrote.“We believe Europe may fail to build up sufficient gas storage for the winter and this may lead to energy rationing,” he said. “If that’s not an economic crisis, what is?”JPMorgan Chase & Co.The moves in European corporate bond spreads would be bigger than the first wave of the Covid pandemic in 2020 if Russia shuts off gas supplies, according to strategists led by Matthew Bailey.Spreads on high-grade debt may surge to 325 basis points, they wrote. For junk-rated bonds, the spread could widen to as much as 1,000 basis points.Goldman Sachs Group Inc.The euro is already reflecting a lot of the negativity, but the currency could fall another 5% if markets price in a full shutdown of Nord Stream 1, said strategists including Christian Mueller-Glissmann. They recommend a defensive allocation, with overweights on cash and commodities.Bank of America Corp.Former copper bull Bank of America also slashed its forecasts last week, warning that in a worst-case scenario where Europe experiences widespread gas shortages, prices could plunge to as low as $4,500 a ton. Copper sank 2% to $7,429 on Tuesday.Most Read from Bloomberg Businessweek©2022 Bloomberg L.P. Continue reading →

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(Kitco News) – Gold prices are slightly up and silver prices weaker in early U.S. trading Tuesday. Gold hit an 8.5-month low overnight and silver a two-year low. The U.S. dollar index continues its assault on the major world currencies and that remains the main bearish element punishing the metals markets. Solidly lower crude oil prices today are also squelching the metals market bulls. August gold futures were last up $2.00 at $1,733.70. September Comex silver futures were last down $0.322 at $18.805 an ounce.
Global stock markets were mostly weaker overnight. U.S. stock indexes are pointed toward modestly lower openings when the New York day session begins. Trader and investor risk appetite remains dented amid recession and inflation fears. Asian countries are also dealing with the worrisome spread of Covid.
The U.S. data point of the week will be Wednesday’s consumer price index report for June, which is seen coming in up 8.5%, year-on-year. In the May report, CPI was up 8.6% annually.
The key outside markets today see Nymex crude oil prices sharply down and trading around $99.00 a barrel. The U.S. dollar index is up and hit another 20-year high early today. The yield on the 10-year U.S. Treasury note is fetching 2.921%.

U.S. economic data due for release Tuesday includes the weekly Johnson Redbook and chain stores sales indexes, the NFIB small business index, and the IBD/TIPP economic optimism index.

Technically, the August gold futures bears have the solid overall near-term technical advantage as prices hit an 8.5-month low overnight. Bulls’ next upside price objective is to produce a close above solid resistance at $1,800.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at this week’s high of $1,743.00 and then at $1,750.00. First support is seen at today’s low of $1,721.60 and then at $1,710.00. Wyckoff’s Market Rating: 1.5

September silver futures bears have the solid overall near-term technical advantage as prices hit a two-year low overnight. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $20.00. The next downside price objective for the bears is closing prices below solid support at $18.00. First resistance is seen at the overnight high of $19.135 and then at $19.50. Next support is seen at the overnight low of $18.63 and then at $18.50. Wyckoff’s Market Rating: 1.0. Continue reading →

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(Kitco News) – The gold market is at a discount to fair value; however, as long as the Federal Reserve continues aggressively tightening its monetary policy, investors are expected to remain on the sidelines, according to one market analyst.
In an interview with Kitco News, Huw Roberts, Head of Analytics at Quant Insight, said that while gold appears cheap compared to its fair value, macroeconomic conditions don’t support a new uptrend anytime soon.
He added that under QI’s modeling, gold’s fair value should be around $1,791 an ounce. The comments come as gold struggles to find new bullish momentum even as it holds long-term support above $1,730 an ounce. August gold futures last traded at $1,734.60 an ounce, down 0.41% on the day.
Roberts explained that QI evaluates gold’s fair value model based on, in very broad terms, economic growth, inflation, financial conditions, including real yields, yield curve and credit spreads, the monetary policy environment, and risk appetite.
Roberts added that the QI models show macroeconomic fundamentals are breaking down for gold, which could point to further weakness in the near term. He said investors using QI modeling are waiting for the macro picture to at least stabilize before buying the current dip.
“Although the model shows that gold is cheap, we don’t actually have a strong buy signal at the moment,” he said. “From a pure QI perspective. We want the macro model value to turn higher.”
As to what could turn the tide for gold, Roberts said that the model suggests there needs to be a shift in the trend in interest rates. Roberts noted that they had highlighted 16 factors that can influence the price of gold; however, the most significant factor driving the market remains inflation. Inflation accounts for more than 18% of gold’s fair value, according to research from QI.
Although inflation is at its highest level in 40 years, real yields are rising. At the same time, breakeven levels, the difference between nominal and real yields, are falling as recession fears increase.
“Breakevens are coming lower, while the market’s getting worried about a recession and falling inflation and until those factors turn around or just stabilize, then our model value isn’t going to stabilize,” he said.

Recession fears have grown in recent days as the market prepares for another extraordinary rate hike from Federal Reserve. Markets expect the U.S. central bank to raise the Federal Funds rate by another 75 basis points at the end of the month.
But it’s not just gold that has dropped below its fair value. Roberts said that silver could be a slightly more interesting asset to watch in the near term.
According to QI’s modeling, silver is about a half standard deviation below its fair value, more than gold but still not enough to trigger a buy signal. Roberts said he watches assets at least one standard deviation from fair value.
QI’s modeling sees silver prices about 7% below fair value. Silver has seen a much sharper drop compared to gold. The gold/silver ratio is currently at its highest level in two years at 90.58 points. September silver futures last traded at $19.155 an ounce, down 0.42% on the day.
What makes silver slightly more exciting compared to gold is that QI’s model shows that the metal’s maco-fundamentals appear to be bottoming and turning higher.
“It’s still early, and we wouldn’t get excited until the macro picture made a new high confirming a bottom, but silver is one asset to watch,” he said.
The asset that Quant Insights is watching closely is copper. The industrial metal has taken a significant bruising as recession fears have increased. Slower economic growth would lead to less demand for copper. Copper prices are trading roughly at a 1.5-year low below $3.50 a pound.
Roberts said that according to QI’s modeling, copper is four standard deviations away from fair value. He added that the copper market has only been this oversold four times in the last 14.5 years.
“If we’re not at the bottom, we’re probably quite close,” he said. Continue reading →