We’re seeing a slightly softer trading session on Tuesday as investors eye crucial inflation data on Wednesday.
We’ve finally reached the point at which the Federal Reserve may be at the end of its tightening cycle and we can start to look forward to when it can feasibly begin to ease policy in order to offset any shock to the economy. But in order for either of these to occur, we need to see evidence in the data that the Fed is on a path to 2% starting tomorrow.
The FOMC will not hesitate to raise one more time if the data doesn’t deliver between now and June 14th, regardless of the signals they’re seeing and small steps in the right direction in the labour market, for example. There should be more than enough in that time to warrant a pause but after that jobs report on Friday, it wouldn’t hurt to avoid a nasty surprise in the CPI. Or the odds of a hike next month may increase significantly from the 8% they stand at currently.
Oil struggling to recover after latest turbulence in US regional banks
Oil traders clearly remain deeply concerned about the turbulence in the US regional banks and what the consequences could be for the US economy, alongside the ripple effects elsewhere. Twice now we’ve seen the price plunge on the back of bank failures and so far this time, they haven’t had the helping hand of OPEC+ to repair the damage.
For the next month, at least, the bullish case for oil may come from fears subsiding around US banks but that may be a lot to ask considering how quickly the collapse of First Republic eventually unfolded after earlier turmoil. Others could easily follow. Until then, just getting back into the December to March range could be an achievement.
Gold edges higher ahead of the US inflation report
Gold is trading above $2,000 and a little higher on the day but it is still some way shy of record highs, a level bulls may have an eye on if we see a softer CPI inflation report on Wednesday. The yellow metal has been buoyed by a drastic repricing of US interest rate expectations since March and over the next couple of months, we’ll see just how fair that repricing has been.
A softer reading on Friday will be a big step in the right direction following a disappointing jobs report on the earnings side. A hotter report could cause another wobble and see gold’s run at record territory paused. The rally is already running on fumes and a hot report could trigger a corrective move in the short-term.
Is a crypto correction on the cards?
Bitcoin has been struggling at $30,000 again in recent days and another heavy decline on Monday could set up an interesting test around $27,000, an area that has been a reliable support level since late March. A break of this level could signal a correction of the incredible 2023 rally is on the cards, with $25,000 being the next major potential support level below.
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
