The stock market recovery has stalled this week despite indices ending on a positive note as investors digest the latest speak from central banks.
Naturally, front and centre on this is the Fed which has notably become more hawkish, something the minutes confirmed is not just a knee-jerk response to the latest economic reports.
We all expect James Bullard at this point to be at the more hawkish end of the spectrum, so his call this week for rates to hit 3.5% this year didn’t cause the shock and awe it would have had they come from certain other members. Lael Brainard’s admission on rates and the balance sheet caused more of a shudder, despite being less aggressive, and were later confirmed by the minutes themselves.
But as ever, investors are taking the prospect of high inflation and rapid rate hikes in their stride and appear relatively undeterred. The yield curve has normalised a little over the course of the week which means the dreaded 2/10 inversion has reversed which may be providing some light relief. I imagine there’ll be plenty more wild swings over the coming weeks.
CBR cuts rates and eyes more
The Bank of Russia is seemingly buoyed by recent actions from the Kremlin despite severe sanctions continuing to be imposed by the West. The capital controls that have been imposed have helped to shore up the rouble which appears to have given the CBR confidence that interest rates no longer need to be so high.
It cut the Key Rate by 3% and left the door open to further cuts depending on financial and economic conditions. At 17%, the rate remains extremely high as inflation is still expected to spike and the economy to severely contract. Given how markets have responded, the CBR may well follow up with further easing later this month.
Bitcoin seeing support but missing out on risk rebound
It’s been a rough week for bitcoin which has been hammered by deteriorating risk appetite just after it broke through a major resistance level. The recovery of risk has only seen it stabilise which is interesting given the momentum it had prior to this period. It has found some support around USD 43,000 which is the 50% retracement of the March lows to highs and also coincides with the pre-breakout resistance. Maybe just a coincidence but certainly a level to watch.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
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