Stock markets are in the green once more on Thursday, with confidence slowly returning as we near the end of the second week without serious drama.
Of course, I’m not including the bank sell-off we saw late last week considering there was no obvious trigger, and fear and panic played a huge role in it. That was more a symptom of what preceded it than evidence of further vulnerabilities in the banking sector.
That isn’t to say that other vulnerabilities and casualties won’t emerge but investors will be feeling a little more comfortable with the situation as a result of this period of relative calm. That said, with another weekend looming, we’ll soon see just how much that shattered confidence has been repaired.
Today is looking a little quiet again, as far as major economic releases go, with Friday the most action-packed of the week. Still, we have jobless claims being released shortly, with investors looking for signs that mass layoffs in tech, banks, and elsewhere are driving up claims and putting some slack back into the labour market.
We’ll also hear from some Fed policymakers which again will be interesting in light of the last couple of weeks, as investors try to make sense of where we now stand and what longer-term damage has been done. And Treasury Secretary, Janet Yellen, is also due to make an appearance in Washington which as we’ve learned in recent weeks, in this environment has great potential to cause a wobble in the markets.
Oil tentatively recovers amid an uncertain economic outlook
Oil prices have continued to recoup losses in recent days as sentiment has recovered, yields have edged higher and global economic prospects have improved. Recent volatility has been a firm reminder of the uncertainty that lies ahead, even as we seemingly near the end of the tightening cycles. While some consequences of much higher interest rates will be obvious, others will be much harder to foresee and that brings downside risks for growth.
But with the recent turmoil abating, the economic outlook is looking slightly better and that has enabled oil prices to recover a little over half of their losses. Further upside could be on the cards but that will depend on multiple factors. Brent and WTI are currently trading around the range lows from early December to early March and it will be interesting to see if they can break back above that psychological barrier.
Gold holding firm
Gold has given back a small portion of its recent gains but it continues to trade not far from the highs of the last couple of weeks. The reason for that is interest rates; expectations have not changed that much since the banking turmoil which suggests investors see scarring in credit markets that will do the Fed’s job for it and maybe even tip the economy into recession, requiring multiple rate cuts later in the year.
This is positive for the yellow metal and could ultimately prove to be the catalyst that not only enables it to overcome the $2,000 psychological barrier but also eye up the all-time highs near $2,070.
Is bitcoin defying reality with the latest rally?
I feel like we’ve gone back in time to when everything was being argued to be bullish for crypto. Inflation, deflation, risk-on, risk-off, low rates, high rates; the list was endless. On the face of it, the last few weeks have been anything but positive and then you look at the price action.
I’m intrigued to see where it goes from here as there seems to be a huge void between reality and prices but then, that can often be said of other markets too – perhaps to a lesser extent – and reality can eventually catch up. This feels particularly strange though and will certainly be one to follow.
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
