It’s been a calm start to the week as investors weigh up what China’s modest growth target means for the global economy and look ahead to a busy few days.
Safe to say markets were surprised by the decision to target only 5% growth this year while signaling no significant stimulus to turbo-charge the economic recovery. It may well prove to be a wise decision when you consider how well the country has transitioned from zero-Covid to living with it, while policymakers around the world may also be breathing a sigh of relief.
One of the upside risks to inflation this year was a turbo-charged Chinese recovery which would drive up demand for a host of commodities from oil to iron ore and as a result prices. So while we may not get the growth boost, we’re probably getting something far more valuable.
It will be interesting to see if this is something that is referenced by central banks over the coming months as they near the end of their tightening cycles and battle what may be proving to be quite stubborn inflation. We may even get a reference to it from Jerome Powell during his testimonies in Congress over the next couple of days.
In reality, these are not the thrilling affairs they are often played up to be. But this time may be different as the Fed is not exactly in anyone’s good books after delaying the start of tightening and as a result having to go further in order to get a grip on it. And with the cycle now in such an unclear phase, I’m sure the grilling will be extra intense this time around.
There’s no doubt what the main event will likely be this week though. The jobs report on Friday will tell us whether the January data was a blip or something to be more concerned about. No one is expecting a repeat of last month but any indication that the labour market is still red-hot could see a fourth 25 basis point hike be more priced in.
Oil slips on modest Chinese growth target
It’s not been a great day for commodities as a whole and that includes oil, which is down a little over 1% on the day. One big upside risk for oil prices this year was a strong, stimulus-driven, rebound in China and it would appear that isn’t going to happen. That said, the growth target is probably a minimum aim and one that could easily be surpassed but it does make stimulus less likely.
Oil prices are a little lower on the day but those losses pale in comparison to the rally last week. They’re still not too far from the upper end of their range of the last few months, although the news does make a breakout to the upside that much more challenging.
Stalling ahead of Powell’s testimony
Gold is edging lower today after a strong rebound last week. The yellow metal is struggling around $1,860 which was always likely to be the first big test above. A move above here could see $1,900 back in focus, although that may well depend on how the two-day testimony in Congress unfolds and, of course, Friday’s jobs report. Another red-hot report could see gold quickly lose any bullish momentum and potentially $1,780-$1,800 come under real strain.
Stabilized for now
Bitcoin has managed to stabilize quite quickly after Friday’s plunge as traders take stock of the situation at Silvergate Capital. Fears naturally resurfaced following reports late last week and just as it seemed cryptos were moving past the FTX debacle. The question now is how widespread the ripple effects will be and how much it will undermine confidence in the space. Bitcoin had already been struggling to break above $24,500-$25,500 resistance and this has just made it that much harder.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
