Risk-averse start to the week

It’s been a tough start to the trading week, with European markets edging lower and the US taking a heavier hit after enjoying decent gains Friday.

After a nervy week, investors appear to be taking a more cautious approach at the start of the quarter. Already everything seems to be geared towards the jobs report on Friday, although it would take something pretty appalling to convince Fed policymakers to take a step back.

They’ve all been singing from the same hymn sheet in recent weeks despite the softness in the data and growing list of economic risks around the globe. There’s clearly a determination to begin the tapering process and I struggle to see the jobs reports being bad enough to derail that.

That’s not sitting well with investors, finally, and the tech-heavy Nasdaq is getting hit particularly hard. The prospect of less central bank stimulus, even rate hikes, at a time of slowing growth, an energy crisis and the uncertainty around Covid going into the winter months is far from ideal.

While the Fed may not be deterred from tapering as a result of softer data and rising risks, you have to question whether disruption in the markets could force a little more patience. They have repeatedly stressed that inflation is believed to be transitory and the reduction of asset purchases is because the economy is improving. If that is the case, and I’m not sure they’re as confident on inflation as they claim, then they could be convinced to wait.

The reality is they’re stuck between a rock and a hard place. There is clearly a desire to pare back stimulus as supply-side inflationary pressures are making them nervous. They may well be concerned that it may be a little stickier than hoped and feel they need to be prepared for that. But a taper tantrum could make that a very hard call.

The Evergrande story continues to be a risk for the markets as well, with trading suspended overnight as the company prepared to make a major transaction announcement. It is believed that Hopson Development is preparing to acquire 51% of its property services group, another of potentially numerous fire sales we’ll see in the coming weeks as it desperately raises funds to keep projects moving and make interest payments.

And these payments just keep coming, with another dollar note reportedly maturing today. The USD 260 million note won’t have the same grace period as the other coupons which creates added urgency as the company could technically default later this week. And still, information from the company itself is scarce which will only add to the nervousness.

Bitcoin paring gains and facing major resistance test

Bitcoin has stalled a little following last week’s surge which saw it smash through USD 45,000 and rapidly gather some real momentum. It’s now trading a little lower on the day but looks in very promising territory. It has seen some resistance around USD 49,000 but the big test now lies at USD 50,000. A move above here could see a fresh wave of optimism in the crypto markets

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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