Up, Down Prices in Stocks, Gold and Crude Oil Capture the Spirit of June Volatility

Here are a few market odds and ends for Wednesday as we approach the end of the one of the most volatile two-sided trading months in years.

 U.S. Equity Markets

The three major U.S. equity markets are trading sharply higher early Wednesday with the Dow Jones Industrial Average posting the biggest intraday gain after the Trump administration’s anticipated crackdown on Chinese tech investment’s turned out to be less-restrictive than expected.

Today’s price action strongly indicates that the sell-off on Monday was another case of investors reading into the headlines before they had all the facts. Investors should know by now that the U.S. has a President that likes to exaggerate, and while there seems to be little method to his madness at times, he seems to be consistent in his message to protect U.S. intellectual property interests.

The next reaction in the markets will likely occur if China decides to respond to this current move by the White House with restrictions of their own although the price action suggests investment professionals seem to think that Beijing has little to fight back with in this case. However, there always seems to be the option of a tariff on U.S. crude imports, an idea that seems to be floating around.

During this tumultuous month, we saw all three major stock market barometers turn lower for the period, suggesting the selling pressure was getting serious. However, today’s price action has turned the indexes higher for June.

As far as volatility is concerned, this month, the VIX jumped higher earlier this week indicating investors were increasing their positions in put options. We also saw the NASDAQ Composite reach an all-time high then just two sessions later threaten to form a technically bearish closing price reversal top for the month. We also saw the Dow Jones Industrial Average post its longest consecutive session losing streak since 1978.

Gold

While stocks were taking it on the chin in June, support for gold continued to deteriorate with prices moving lower for the year, while selling pressure drove the usual safe-haven asset to within a few dollars of a six-month low.

According to government reports, open interest in the long side of the gold market has reached a 2-1/2 year low, while hedge funds increased bets on a bullish U.S. Dollar for the first time in a year. It all comes down to liquidity issues in the gold market. There is simply no liquidity , or money flowing into gold because the hedge funds believe that a rise in the U.S. Dollar is a safer bet, given that the Fed is likely to raise interest rates at least two more times this year and possibly as many as three times next year.

U.S. Dollar

And speaking of the U.S. Dollar, it’s in a position to post a solid gain for the month despite the possibility of lower Treasury yields in June. Additionally, the Greenback is also showing little reaction to the so-called harmful effects of the trade war.

At times in June, traders actually moved money into the U.S. Dollar on the notion that a trade war would drive up prices in the U.S. and consequently inflation, which would mean the Fed would have no choice but to be more aggressive in hiking interest rates. And we all know that higher rates makes the U.S. Dollar a relatively more attractive investment.

Crude Oil

After ending May and starting June on a steep price slide, crude oil prices are now trading at their highest level of the year. Although OPEC and its other major trading partners agreed to raise output last Friday, their less-than-1-million barrel per day increase in output left little room for error.

Sure they accounted for production losses from Venezuela due to economic turmoil and Iran because of the sanctions, however, they didn’t figure on supply disruptions in Canada and Libya.

Furthermore, U.S. producers may have figured out how to convert shale to crude oil at record levels, but they didn’t think that perhaps they needed pipelines and other means to actually deliver the product to their customers. So essentially, they moved oil from the ground and put it into tanks until last week when about 9.9 million barrels left storage.

Also what was the White House thinking when they reportedly asked Saudi Arabia to push for an increase of about 1 million barrels of oil per day in extra output in order to keep prices down, then turnaround just days later and order zero exports from Iran, only to drive prices up? Obviously someone in the Trump administration missed class the day they were teaching the laws of supply and demand in Economics 101 class.