Equity markets ended last week on a negative note but they’re bouncing back once more in trade on Monday.
Interest rate fears are front and centre, following a terrible month of data from the US in January, as far as the Fed is concerned at least. That was further compounded on Friday by the PCE, income, and spending data which didn’t come as a major surprise given what preceded it but it didn’t offer any relief either.
Thankfully, January is likely to be an anomaly month driven by unseasonably warm weather and the data over the next few weeks prior to the next Fed meeting will confirm to what extent that is the case. For now, bond investors are fearing the worst, something that is much less evident in equities.
Another hot jobs report next week could put seriously test the enthusiasm we’ve seen so far this year in equity markets as it would cast major doubt over the extent to which January was a blip and cement expectations for more rate hikes for longer, perhaps even reverting back to 50 basis point moves.
In the interim, while this week offers an abundance of economic data and events, the vast majority is tier two or worse and so will not likely be hard-hitting. But as we’ve seen today, investors clearly don’t need much of a catalyst to get things moving.
Choppy and directionless
Oil prices are drifting lower again as we continue to see choppy trading conditions. We’ve seen consolidation in oil prices for many weeks now but it is happening at a glacial pace and there’s little reason to expect that’s going to change in the immediate future. One upside risk could be an improvement in the economic data that points to cooling in all the right places, while any indication that China’s adjustment is experiencing difficulties could be a downside risk. That aside, choppy with ultimately sideways trade could be on the cards a little longer.
Losing momentum
Gold is a little higher today, buoyed by a slightly softer dollar and small declines in US yields. We are seeing less momentum in the sell-off recently as it drifts ever closer to $1,800. That remains the big test for the yellow metal now, between $1,780-$1,800, and it may take another nasty turn in the economic data to seriously test that support.
On the rise again
Bitcoin is rallying another 3% today after briefly dipping below $23,000 over the weekend. Once more we’re seeing some resilience in the space and it seems as long as equity market optimism remains in place, crypto bulls are going nowhere. The key test to above remains the $24,500-$25,500 region, a break above which could generate a lot more excitement.
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
