Turnaround Tuesday, Pepsi's inflation warning, dollar rebounds, nothing stopping oil, gold lower

US stocks are rebounding as investors find value in beaten up tech stocks and are coming to the realization that the global natural gas crisis is good news for energy stocks. Yesterday, the Nasdaq selloff brought the recent slide to 8.5% from recent record highs. US growth exceptionalism will be the theme for the next couple of quarters and that will help make it easy for fund managers to buy every dip. Turnaround Tuesday might not lead to a substantial rally as Evergrande uncertainty remains, DC drama will last a couple more weeks, Treasury yields are consolidating ahead of Friday’s employment report, and Shanghai markets are closed for Golden Week.

The risks to the outlook remain and trading over the next couple of days may start to become rangebound. Pepsico’s results and commentary provided another check to the inflation is persisting camp, and if that theme appears apparent across all sectors, risk appetite will struggle.

Energy stocks will see continued support over surging oil prices. Oil prices are getting extra demand from the shortfall in natural gas. The oil market is heavily in deficit and that won't change until after the winter.

Pepsi

Pepsico delivered strong third quarter results with beats on the top and bottom lines, along with raising its full-year organic revenue guidance. Pepsico acknowledged they are navigating through the impact of higher commodity, transportation, and supply chain costs. Wall Street set the bar high for the beverage and snack maker, but with no optimism that the cost/inflationary environment will improve, the outlook for next year is on shaky ground. Pespico's share price isn't doing much this morning.

Pepsico CFO Johnston told CNBC that we’ll probably see a little bit more pricing increases in the first quarter. Inflationary pressures are not easing anytime soon and if this earnings season delivers broad price increases for the US consumer, the 2022 outlook will start to come into question.

FX

The dollar extended gains after the US trade deficit widened to a record as demand for imports surged. The 10-year Treasury yield is back above 1.50%, but still unlikely to deliver a substantial move above the last week’s high of 1.5565% until after Friday’s employment report. With oil prices potentially entering skyrocketing mode, commodity currencies are faring better than high-beta currencies.

Oil

Crude prices bought a one-way ticket higher as a global energy crisis provided an unexpected surge in demand that is swinging the oil market further into deficit. Brent crude did not waste much time with the $80 level and the profit-taking that has occurred following each surge has been somewhat limited. Even a stronger dollar is not disrupting the move in crude prices.

This week, energy traders could see $85 oil if US stockpiles start to decline again. Analysts have a mixed view so this afternoon’s weekly API crude oil inventory release could trigger a big move. Energy traders are ready to lock-in profits, so a small dip could happen if stockpiles deliver a decent sized build, which would likely be attributed to higher production, robust imports, and as refiners mostly rebound from the peak of hurricane season.

Gold

Gold prices got hit with a double dose of bearish drivers as turnaround Tuesday dampens demand for safe-havens and as Treasury yields rise, ending the dollar’s three-day slide. The upcoming nonfarm payroll report could be a gamechanger for gold prices, so prices will likely consolidate between the $1,745 and $1,775 range. With China closed for golden week, gold will likely see limited safe-haven flows from Asia despite the persisting uncertainty with Evergrande.

After Friday, Wall Street could have a unanimous view over Fed tapering that could lead to the last major move lower. Once tapering is fully priced in, financial markets will grow fixated over the risks to the 2022 outlook and that will be the greenlight for many investors to return to bullion.

Complicating the demand for bullion has been crypto resilience that is stealing away some institutional flows that would normally go gold’s way. Gold’s short-term outlook remains bearish, but the medium-term should become bullish.

Bitcoin

Bitcoin is closer to $100,000 than it is to zero. Recapturing the $50,000 level is a big deal for Bitcoin and significant for the cryptoverse. Bitcoin is starting to show bullish signs despite whatever risk mode is happening on Wall Street. It appears large parts of both the retail and institutional world have evolved and have embraced becoming Long-Term-Holders(LTH). The upcoming regulatory guidelines could prove to be disruptive over the short-term, but many cryptocurrency traders are gladly buying now in anticipation that we’ve seen the majority of the selling pressures. A Bitcoin ETF might take a little longer to get done, but it seems like it will certainly happen. That is expected to pave the way for the next boom.

Bitcoin volatility is always elevated on the passing of key psychological levels and that should remain the case this week. If Bitcoin rallies above the $52,000 level, that could trigger another wave of technical buying. Bitcoin could trade a handful of times through the $50,000 over the next couple of days.