A cautious start to the week

Stock markets are off to a cautious start to the week and Wall Street is eyeing a similar start in a few hours.

Stocks made baby steps in early trade – as we’ve seen repeatedly in recent weeks – but it didn’t last long and indices have since moved slightly into negative territory. There’s been so much anxiety about inflation and interest rates that investors are clearly apprehensive about over-committing. And that anxiety has been exacerbated by the prospect of lockdowns in Europe, following Austria’s announcement on Friday.

All things considered, it’s impressive that stock markets are already trying to build upward momentum again. Investors are battling on and holding their ground, but the headwinds are becoming more fierce. While they’re weathering the storm, for now, I fear it isn’t close to passing and they may eventually be swept aside.

Perhaps today’s brief rebound is a case of relief at Germany not yet announcing another lockdown, even as it experiences a similar case surge to that of Austria. Comments from the country’s Health Minister on Friday suggested it is under consideration. There may be more reluctance to pull the trigger in many countries than in the past, considering the high vaccination rates and protests across Europe this weekend.

It will be interesting to see whether the rising caseload weighed on the outlook in the region, as businesses perhaps prepared for tighter restrictions. The flash PMIs may give an idea of what businesses are expecting on Tuesday, although we may have to wait a month to get a fuller idea, as the Austria announcement appeared to catch many off-guard.

While the topic of conversation may change to lockdown threats in the early part of the week, it will shift back to inflation and interest rates as it progresses. Fed minutes on Wednesday and ECB accounts on Thursday mean the debate is never far from the headlines and that may feed into the unease we’re seeing.

The US bank holiday on Thursday will also weigh on volumes and will turn into a long weekend for many of that side of the pond, which will give the feeling of a shortened week for the rest of us. Trading could be relatively subdued for the rest of the week although there is a flurry of data over the next couple of days that could perk things up.

How deep a correction could bitcoin be facing?

Bitcoin is slipping again today after paring losses in recent days. It failed to break back above USD 60,000 though which may be a bearish signal in the near term. Most people seem to be of the opinion at this point that bitcoin hasn’t peaked and new highs aren’t that far away, but as we’ve seen so often in the past, corrections can be deep and painful. We may not be seeing that now but a failure to get back above USD 60,000 suggests 20% may not be as bad as it’s going to get.

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

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
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