MPC grilled as the central bank continues to fight double-digit inflation
We heard from some Bank of England policymakers earlier as they were grilled by the Treasury Select Committee on quantitative tightening, among other things naturally. Bailey and colleagues were quite consistent in their messaging and it’s probably what the Governor said on Wednesday that raised a few eyebrows as he insinuated that the UK could be seeing a wage-price spiral which could complicate returning inflation to 2%.
The members were still confident in their assessment despite repeated reminders of apparent past failures and markets seem unconcerned about the supposed wage-price spiral, continuing to price in one, maybe two, hikes this year. Things should become much clearer very soon.
US data still points to weakness in the economy
The US data released today won’t do much to change people’s views on the economic situation in the country right now. The jobless claims data indicates more resilience than anticipated but the trend remains higher and will likely accelerate. While the manufacturing surveys can be noisy, as we saw with the empire state earlier this week, overall the sector remains weak and only represents a small portion of the US economy.
Oil remains in lower range as traders eye June OPEC+ meeting
Oil prices are slipping on Thursday after surging the day before amid optimism around debt ceiling talks. I’m still far from convinced that traders are taking the threat of default seriously but the closer we get to the deadline, the more we could see it influence markets simply as a result of more risk being priced in.
Broadly speaking the picture is unchanged. The market is trending in a lower range below where it stood prior to the SVB collapse and then the loss of First Republic. Better economic expectations or another OPEC+ intervention will likely be needed in order to lift oil prices back into that December to March range and neither look likely over the next couple of weeks.
Gold correction continues but outlook still looks bright
Gold is off more than 1% and now comfortably below $2,000 as traders accept a run at record highs has been postponed. I still believe there’s a good chance that we see the yellow metal in record territory, perhaps this year, but traders may now await a more significant Fed pivot than simply hinting it may pause.
Once more, it all hangs on the data over the next couple of months as we see just how stubborn inflation is and what impact favourable base effects have on it. Not to mention how impactful past hikes will prove to be, alongside credit tightening on the back of those bank issues in the US. If that proves to be as significant as some expect, the Fed pivot could come sooner than anticipated.
Deeper correction possible despite consolidation
Bitcoin is continuing to consolidate after previously slipping below $27,000, a break that could have been the catalyst for a steeper decline and may still be. The recent trend is still very much against it and the consolidation doesn’t really change that. And let’s face it, another move lower still leaves it with a very healthy gain since the start of the year and in a strong position. The next notable support level below appears to be $25,000.
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
