Stocks, gold and crude fall as pivotal inflation reports loom—Bitcoin gains

Good morning.

U.S. futures are weaker ahead of another big week of corporate results and inflation data. We finished last week with a string of new all-time highs. Alas, the bulls, this morning at least, are outnumbered.

Stocks may be lackluster, but the real laggards are in the commodities space. Crude and gold are sinking again this morning. Gold has dropped more than 3% over the past two trading sessions.

One of the few bright spots is in crypto. Bitcoin continues its impressive run. It’s up roughly 50% since its mid-July swoon.

In today’s essay, I dig into the winners and losers from Friday’s jobs report.

But first, let’s see what’s moving the markets.

Markets update

Asia

• The major Asia indexes are mostly higher in afternoon trading with the Shanghai Composite up nearly 1.1%. Japan and Singapore markets are closed today.
• Chinese shares are up despite disappointing trade data coming out of Beijing. COVID-19 flare-ups and extreme weather dented exports last month, Reuters reports.
• Shares in Saudi Aramco were up 0.3% after the oil giant reported Q2 profits on Sunday nearly quadrupled year-on-year, soundly beating estimates, as the price of crude and chemicals jumped.

Europe

• The European bourses were pretty lackluster out of the gates with the Stoxx Europe 600 up—squints—0.02% two hours into the trading session. Healthcare, tech and utilities stocks are leading the way higher.
• The climate has knocked COVID off the front pages in much of Europe. Southern Europe is burning. Wildfires in Greece, Turkey and around the Mediterranean are forcing homeowners and holidaymakers to flee for their lives. In parts of Italy, where temps this week could hit 50C (for Fahrenheit, you simply multiply by 1.8 and add 32 to get, yikes!), they’re calling the heat wave Lucifer. My morning routine (again) involves shooing snakes away from the kitchen door. When reptiles are seeking shelter from the heat, it’s hot. 🐍🐍
• With U.S. COVID cases up five-fold since June, the EU is likely to reimpose travel curbs on Americans planning to travel to Europe, Bloomberg reports.

U.S.

• U.S. futures are trading lower this morning. That’s after all three major averages closed out last week in the green.
• Shares in Berkshire Hathaway were 0.3% higher after the conglomerate reported a big bottom-line beat this weekend. At the end of June, it had $144 billion in cash on its books, after spending more than $12 billion in share buybacks so far this year.
• What’s on the calendar this week? We have earnings from Coinbase (tomorrow), plus Walt Disney and Airbnb (Thursday). All eyes on will be on the CPI (Wednesday) and PPI (Thursday) data for the latest on inflation. Friday, we get the University of Michigan consumer sentiment report.

Elsewhere

• Gold has really tumbled since Friday’s jobs report, trading below $1,750/ounce, a four-month low.
• The dollar is flat.
• The slump in crude continues with Brent trading below $69/barrel.
• Bitcoin held most of its weekend gains, trading around $43,500.

***

Laboring along

Friday’s job data surprised to the upside. So much so that it could flip the script on the big markets chatter.

Here’s the way-too-early winners and losers following last week’s jobs print. The big gainer on Friday was bank stocks with the S&P financials sector closing 2 percent higher. This makes sense. With each rosy labor report the odds grow the Federal Reserve will, first and foremost, pump the brakes on asset-purchases—what’s known as “tapering”—and, further down the road, raise interest rates from their rock-botom, near-zero level. Lenders find it really hard to make money on mortgages and loans when rates hover around zero. So, any indication that this super-dovish Fed policy is on its way out the door could be good news for bank stocks.

Another “day one” winner is the dollar. It jumped again on Friday (particularly so against the euro; there’s far less certainty on ECB monetary policy). Goldman Sachs is pricing in dollar appreciation in the near term on the assumption that investors will be obsessing about tapering and tightening. “Markets may need to price an ‘early hike’ risk premium as long as inflation remains high and the taper timeline remains unsettled,” Goldman’s FX team wrote in an investor note over the weekend. A strong dollar will be a headwind for American multinationals, so a protracted dollar rally will be worth watching.

On the other end of the spectrum, we have another safe haven—gold—and growth stocks.

The shiny yellow stuff sold off hard Friday and again this morning as gold bulls price in the prospects of rising rates. Gold was one of the first big asset classes to sell off during the 2013 taper tantrum, and it appears something similar is happening now. So, gold too is one to watch to get a sense of markets’ feeling about a rising-rates environment.

The Nasdaq on Friday was an outlier. It fell 0.4 percent while the Dow and S&P gained ground. As many a Wall Street commentator has warned, high-growth, low-margin tech stocks historically underperform during times of rising prices and rising rates. Of course, we heard this same argument in Q1, and then tech stocks took off in Q2.

There are plenty other factors—COVID spikes, an imminent deal on infrastructure spending, inflation and commodities pricing volatility—that could buffet stocks in the near term.

But still, the market response to an improving labor market is shaping up to be a plot twist worth watching.

***

Postscript

The via Salaria—the old “salt road”—connects Rome to the east coast, snaking up and over the Apennines before descending to the Adriatic Sea. As the name implies, this was a pivotal trade route, feeding the capital with not only a vital ingredient to preserve foods, but also power, wealth and the flow of people, capital and ideas. 

The Salaria, clearly, was worth its salt, as they say.

If you travel the Salaria today you might miss a bit of that grandeur. Most motorists (your correspondent included) have avoided it like the plague, preferring to head east via the broad two- and three-lane highways further north in Umbria or down south in Abruzzo.

In 2016, the heart of the Salaria was socked by two earthquakes, devastating the splendid historic gems of Norcia and Amatrice and smaller towns like Accumoli and Arquata del Tronto. The New York Times published a jarring photo reportage following the first of the quakes, in August of that year.

Yesterday was the first time I had returned to the area since the quake.

To beat the heat, I took the girls, and our panting truffle puppy, to the amazing swimming holes on the Tronto river—hot springs, deep pools, water falls; it’s pretty amazing. Scilla, our little water dog, was in her doggy glory paddling around in the streams.

Afterwards, our hair (and fur) smelling like sulfur, we traveled to the epicenter of the quake area for lunch. I was shocked at the level of destruction still visible. Five years on, there are few signs of any meaningful rebuild underway.

In the months after the quake, the government built “new towns,” as they’re called, to house the displaced and give shop owners and restaurateurs a place to continue to ply their trade. It’s meant to be a temporary fix, but as the years drag on, the lack of movement is weighing on the locals.

Over a lunch of grilled local porcini mushrooms at the fabulous Osteria del Castello, a Slow Food favorite, the owners told us construction plans up and down the Salaria are on pause. The problem: building materials are so nutty costly, something builders the world over know all too well.

The people in this area have dealt with a lot in the past five years: earthquakes, a pandemic, and now a run on commodity prices.

I vowed to them we’d return to the Salaria. It’s so spectacular, even in its current shaken state.

Sometimes the slow road to Rome is still the best way to go.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.

Today's read

What would two of the world’s most famous economists think about Bitcoin?—Fortune

Why digital taxes could survive the hard-fought global deal that’s supposed to kill them off—Fortune

On vacation in Italy, Volkswagen CEO fumes there are no functioning charging stations for his ID.3—Fortune

Cathie Wood, Meme-Stock Champion Who Bet Big on Tesla and Bitcoin, Stands Her Ground—Wall Street Journal

Going for Broke in Cryptoland—New York Times

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My personal "fake vaccine pack" came advertised with an animated gif.

And so begins Katherine Dunn's down-the-rabbit-hole adventure into the booming online marketplace for counterfeit COVID vaccine certificates. She hangs out on the encrypted messaging app Telegram, "just one entryway into an exploding and barely hidden black market for COVID-19 certificates and passports, fueled both by people in wealthy countries who don't want to get vaccinated, and people who still can't get access to vaccines," Dunn writes in Fortune. It's a wild, and, at times, disturbing read.