April 16, 2024
If King Dollar is wobbling, this asset is your best investment, says Citi

If King Dollar is wobbling, this asset is your best investment, says Citi

Fresh data showed China’s economy knocked it out of the park early this year, as its strict pandemic lockdown ended. That may be giving a lift to U.S. stock futures for Tuesday, possibly bringing the S&P 500 one step closer to those February highs.

But investors may not want to get too far ahead of themselves with the bulk of earnings season yet to come, and recession worries lingering. Credit Suisse’s Andrew Garthwaite tells clients “recession risk is flashing bright red,” keeping them wary on stocks, while JPMorgan’s Marko Kolanovic warns even a mild recession could mean equities correct by 15%.

Also grabbing some limelight these days is the King Dollar, whose six-month rally came to a grinding halt in recent weeks. As MarketWatch’s Joseph Adinolfi points out, much of that is due to expectations Fed hikes will soon be over, though speculation of the dollar’s early demise may also be greatly exaggerated.

That brings us to our call of the day from a team of analysts at Citigroup, led by Maximilian J Layton, who see more dollar weakness ahead, which is good news for a shiny asset less often in the spotlight.

“Silver SI00, +0.37% has already rallied 20% in a short period of time, but we think it has another >10% move in the tank over the coming months to $30/ounce, with our bull case of $34/ouncestill a distinct possibility over the next 6 -12 months,” Layton and the team told clients in a note.

The analysts see many fundamental drivers of the precious metal’s bull market yet to fully play out, including more downside for the dollar and interest rates, and increased investor interest in precious metals in the coming months.

Layton and the team note since mid-March, December silver futures SIZ23, +0.37% are up 13.6% to around $26.02 an ounce, within their $28 target. They are lifting their prior “bullish” 0 to 3 month forecast to $28/oz from $24/oz, their six-month forecast to $30/oz from $28/oz, and a one-year price target to $27/oz from $25/oz.

“Precious metals and especially silver has near perfect conditions for the ongoing bull market,” they say, noting that the fundamental story is comparable to what was seen in the second half of 2007 and early 2008 —weaker developed markets and stronger emerging markets. Those conditions have marked major precious bull markets of the past two decades, they added.

Speculative interest in silver, such as futures action and exchange-traded funds, also has much further to run, says Layton and the team. The value of that interest right now amounts to about $7 billion, while prior silver bull markets have seen it in the ballpark of $12 billion to $26 billion.

“ETF buying seems strongly negatively correlated with U.S. real interest rates and thus a significant move lower in real rates could provide a large move higher during 2023,” said Citi.

And it’s an asset that is prone to dramatic gains once investors wake up, since the market is tiny relative to the scale of speculative interest. Examples of that dramatic price action: a three-week rally in July 2020 that saw prices climb to $29/oz from $19/oz or a 166% surge between August 2010 and April 2011 when prices shot to $48/oz from $18/oz.

Investors can get exposure to silver via the futures markets, or even coins, but there are also plenty of ETFs to choose from: Global X Silver Miners ETF SIL, -2.43% up 11% year to date, ProShares Ultra Silver AGQ, -2.72%, up 5% and iShares Silver Trust SLV, -1.24%, up 4%, to name a few.

Read: Speculators bet the U.S. dollar is poised for a rebound after longest losing streak in 3 years

The markets

Stock futures ES00, +0.42% YM00, +0.41% NQ00, +0.61% are higher, while Treasury yields TMUBMUSD10Y, 3.588% TMUBMUSD02Y, 4.177% are lower, along with the dollar DXY, -0.40%. Gold GC00, +0.43% and silver SI00, +0.37% are up, and oil prices CL.1, -0.14% are little changed. The Hang Seng HSI, -0.63% fell 0.6%, as data showed China’s economy grew 4.5% in the first quarter of the year, as consumption rebounded.

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The buzz

Bank of America BAC, +2.88% stock is up 2.8% after topping earnings estimates, while Bank of New York Mellon BK, -4.59% is down 4% as earnings matched forecasts, with fee revenue flat. Goldman Sachs GS, +0.82% is still to come. Johnson & Johnson JNJ, -0.10% is up 1% after the consumer health and pharma group beat estimates and lifted guidance.

Netflix NFLX, -1.75% will report after the close on Tuesday, with Tesla TSLA, +1.10% and Morgan Stanley MS, +2.98% expected on Wednesday.

Bed Bath & Beyond stock BBBY, +17.64% is soaring 13% in premarket, extending a bounce from Monday after the home-goods retailer stock slid last week.

U.S.-listed Ericsson shares ERIC, -0.67% are down 5% after the Swedish telecom equipment maker’s reported forecast-beating earnings, but warned of a choppy 2023.

Bellus Health BLU, +3.08% BLU, +2.83% shares are up 97% after GSK GSK, -1.01% said it has reached a deal to buy the Canadian late-stage biopharmaceutical group for $14.75 a share in cash.

Housing starts are due at 8:30 a.m., followed by a speech from Fed Gov. Michelle Bowman at 1 p.m.

Games maker Capcom 9697, +9.01% surged in Tokyo thanks to an alternate reality game — Monster Hunter Now — it developed with the creator of Pokémon Go.

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The chart

Is a retail frenzy afoot? Here’s a chart from the portfolio manager of Crescat Capital, Otavio Costa, on call options, which are essentially a bet on higher prices:

@tavicosta

The tickers

These were the top searched tickers on MarketWatch as of 6 a.m. Eastern

Ticker Security name
TSLA, +1.10% Tesla
BBBY, +17.64% Bed Bath & Beyond
BUD, +0.56% Anheuser-Busch InBev
AMC, +1.56% AMC Entertainment
GME, -0.80% GameStop
NIO, +6.04% NIO
AAPL, +0.01% Apple
NVDA, +0.91% Nvidia
INFY, +0.07% Infosys
BABA, +1.98% Alibaba
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Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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