Bitcoin, gold, crude oil, copper: markets to watch as debt ceiling talks continue
Bloomberg Intelligence Senior Macro Strategist Mike McGlone joins Yahoo Finance Live to discuss the impact the debt ceiling talks have on commodities, what commodities to watch, and the oil market.
Video Transcript
RACHELLE AKUFFO: Well, 2023 has been a year of rebounds for some beaten down assets. Bitcoin perhaps the most notable. But with inflation, rising interest rates, and the growing fear of the US defaulting on its debt is the tide about to turn? A great time to speak with Mike McGlone, Bloomberg Intelligence Senior Macro Strategist. Good to have you on the show here. So we mentioned Bitcoin, one of the best performing asset classes by return year to date along with gold. So you have your traditional safe haven and something that at one point was considered digital gold or a digital safe haven. Break those down for us starting with Bitcoin.
MIKE MCGLONE: Well, Rachelle, I think it's important to note that virtually all risk assets have been upped this year. Bitcoin is one of the riskiest and some people have called it the fastest horse in the race. It's up the most. But it looks like it ran into a wall resistance around $30,000.
It looks like risks are tilted now towards the downside, particularly if the stock market starts rolling over. Yet, gold is the opposite. Amongst commodities it's the significant major commodity that's up on the year end in a 12 month basis. It's up about 10%. And you look at the Bloomberg Commodity Index on a 12 month basis it's down 24%. So I think what you're seeing happen is deflation in commodities, most particularly fossil fuels like crude oil is down 40% in a 12 month basis. It's fueling inflation for gold. Yes, we have this budget crisis. But I think the biggest risk now is as we tilt towards recession that gold continues to outperform most assets and continue including Bitcoin unless we get that stock market take off and it's kind of counter to what I think the Fed's wanting.
RACHELLE AKUFFO: So to that point then, what do you think is going to be the next catalyst? Does it have to be a Fed pause or a Fed pivot in order to really see a catalyst here?
MIKE MCGLONE: So the catalyst, I think it's already kicking in and that's copper. You probably didn't expect that answer, but copper has a very high correlation, at least for the last five years with the stock market. Copper has broken down. It was up 12% in the year. It's the metal considered to have a PhD in economics.
It's broken. Now, it's down almost 2% to 3% on the year. It looks like it's heading lower. That's typically an indication for risk assets, for the economy, and for the stock market. So if the S&P follows that, which I think it will, I think gold is going to continue higher. And Bitcoin is very risky. You know crypto is the riskiest assets, Bitcoin is just the least risky, is more likely to fall copper I think in this case as we tilt towards recession.
Now, as far as the pivot from the Fed, that's priced in the futures market. What's unique about it is most economists say oh, and even the Fed says we're not going to be easing in this year. Yet, the futures have priced for it. So I think one way for that to happen is for commodities to continue to deflate, which they are, and the stock markets will roll over. That might force the Fed's hand a little bit too, they've already stopped tightening to potentially ease by the end of the year.
RACHELLE AKUFFO: Another commodity to watch, we're taking a look at oil. Over the past year down almost 40%, about 38% so far. What are we seeing there? Because we know there were issues when it first came to the tail end of what we're still seeing with the Ukraine crisis and then obviously you have things like oil summer blends and things like that. What are some of the things that you're noting in the oil market right now?
MIKE MCGLONE: It's a bear market. One thing to remember about crude oil is it peaked in 2008, last year it just bounced to a lower high, and it looks like it's rolling back over to that bear market. So it had a bounce in a bear market. I see crude oil WTI more likely to head towards about $57 a barrel. $57 a barrel was the average price in 2019 before we kicked in this massive liquidity pump that was related to COVID and the war. And there's a good indication for that happening.
Natural gas has already done that. Natural gas' average price before it pumped up to around 10. It was around 2. Now it's dropped to 2, it's bounced. But natural gas is the most significant measure of heat, electricity, and fertilizer in this country. And crude oil is significant, but as the world tilts towards recession, I think-- the way I like to say this might be irrational. Expect demand increase on a global basis with the US heading towards recession. So I see WTI in a bear market more likely to continue heading lower following natural gas. And in this case kind of in sync with copper, which has been breaking down recently.
RACHELLE AKUFFO: And I have to ask you about Home Depot. Obviously when you look at some of the deflation that we saw in lumber prices, weaker consumer demand. When you look at it as sort of a bellwether of commodities, some of these other home builders, you have all these commodities sort of built into the business. What is that telling us right now?
MIKE MCGLONE: Bear market. I'm glad you mentioned lumber, Rachelle, because it's not a significant commodity, but it's a good indicator. It's dropped at the same price as it first traded in about 1990 after that massive pump last year. And it was the biggest one-- one of the biggest rabbits in the bull market and the rabbits have collapsed. Natural gas is a more significant rabbit that is also collapsed.
I see the dominoes. Falling copper of last week broke down in the year. Crude oil is breaking down. Sugar is one of the few that's up, but it's not significant. And there's only one outlier. All that deflation we're seeing from commodities is keeping gold inflating. I think that trend is going to accelerate, particularly as we tilt towards recession.
RACHELLE AKUFFO: All right. Great stuff. Thank you for your insights. We do appreciate you joining us. Mike McGlone there, Bloomberg Intelligence Senior Macro Strategist. Thanks so much.
