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A sustainable rebound?

Or more downside to come?

Stock markets rebounded on Tuesday, with Europe and the US posting gains of more than one percent, while the Nasdaq led the way, up more than 1.5%.

We may be seeing investors testing the water after the recent sell-off, with levels potentially looking more attractive following a decent pullback. The Nasdaq wasn’t far from 10% off its highs while the S&P and Dow were a little over 5%. I’m not sure the markets have hit a low but it will be interesting to see what kind of traction the rebound gets.

Ultimately, the long list of downside risks for the economy hasn’t got any smaller and central banks don’t appear any less determined to pare back pandemic stimulus measures. Evergrande is a long way from being contained, quite the opposite, in fact. Trading remains suspended on Evergrande’s shares, while other developers are now falling victim to the crunch.

This is only starting to unravel and while there is clearly a massive effort occurring in the background to raise funds to repay investors and keep projects moving, there is an enormous amount of damage limitation still to do.

It will be interesting to see just how much appetite investors have for this rebound, given how much uncertainty remains. The energy crisis is not getting better and the decision by OPEC+ not to relieve the pressure on oil prices won’t help that. Are investors really willing to ignore all of this and more when central banks are pulling back amidst higher inflation?

The test of this won’t be today’s move, but the ability to extend it to the end of the week and make up significant lost ground. We’ll know soon enough if investors are back on board or not. I suspect nerves are still there under the surface and it won’t take much to knock them once more.

Bitcoin eyeing record highs?

Bitcoin overcame another major hurdle on Tuesday, breaking back above $50,000 for the first time in almost a month. Once again, the cryptocurrency looked on the verge of correction, it arguably entered into one, but bulls showed incredible resilience to hold support around $40,000 and are now being rewarded. Suddenly, all-time highs don’t look too far away.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [4]

Senior Market Analyst, UK & EMEA at OANDA [5]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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