It’s been a quiet start to the week with stocks edging lower in light trade due to the US bank holiday.
It feels like last week may have left us with more questions than answers in that the US inflation data was ok, not great, the Fed paused while forecasting multiple more hikes, and the ECB hiked while insisting more is to come.
Now it’s up to the BoE to continue its firefighting mission; one that is at risk of getting out of control despite the MPC’s efforts to contain it. Of all the major economies desperately trying to get a grip on inflation while delivering a soft landing, the UK looks least likely to achieve it.
The BoE will be crossing its fingers for some good news from the May inflation data the day before its decision but if recent releases are anything to go by, we probably should get our hopes up. And if we get another nasty surprise, I wouldn’t be surprised to see markets price in 50 basis points on Thursday above the 25 we see now.
Economic outlook maintains pressure on oil prices
Oil prices are trading broadly flat at the start of the week, in keeping with the general feeling in the markets in the absence of any notable catalysts. It has recovered quite well over the last week having fallen back towards the 2023 lows last Monday. It remains in the lower trading range between $70-$80 in Brent and showing little sign of breaking in either direction at this stage.
The economic outlook has been a major factor behind its slide this year and some improvements on that side could turn things around for it. The problem is that no major central bank has yet ended its tightening cycle and a number of more rate hikes could still be on the cards. Even those that had previously declared a pause have restarted.
A choppy period but what’s going to change for gold?
Gold has been very choppy over the last month and recent data and central bank decisions haven’t enabled it to break out of its tight range in either direction. It’s been trapped largely between $1,940 and $1,980 and showing few signs of changing that in the near future.
Things can obviously change at any point and there’s plenty of Fed speak this week as well as central bank interest rate decisions. But we’ve just heard the latest thoughts and projections from the Fed so I’m not sure what we’ll learn of particular value. It’s all about the data at this stage.
More pain to come for bitcoin?
Bitcoin ended last week quite positively after dropping to three-month lows on Wednesday but it continues to look vulnerable to further declines. The two-month trend is not in its favour and the news flow isn’t exactly helping the situation either. It’s had a remarkable year and remains more than 50% higher so it’s hardly a dire situation.
And against that backdrop, recent losses are merely a corrective move in a more promising bull run. But there isn’t much to suggest it’s going to improve just yet, especially with the SEC going in hard on major exchanges.
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
