Clutching at straws

It’s not hard to see what the theme of today’s note is going to be and for good reason when you see stock markets making punchy gains again in spite of the months that lie ahead.

Maybe the heat is getting to everyone – getting closer to 40C here in London and my fan just isn’t cutting it – or perhaps the doom and gloom has become a bit tiresome but the two-day rally we’ve seen on the back of so little looks a little hopeful to me.

As ever, I’ll caveat this with the fact that stock markets are severely discounted compared to earlier this year and not everyone is sold on the inevitability of a recession, or a particularly deep one, but what we saw on Friday just doesn’t reflect anything worth getting overly excited about.

The Fed probably won’t hike by a full percentage point next week but they probably will by 1.5-1.75% over the next two meetings and that 25 basis points just isn’t the deal breaker for the economy. ​

And if we can discount consumer sentiment and inflation expectations when they’re not good, we can’t hang our hats on them when they surprise to the upside. The retail sales data on the other hand is encouraging and households continuing to dip into savings as incomes are severely squeezed could make all the difference.

Better than expected earnings from Goldman Sachs and Bank of America may be helping the positive mood at the start of the week, although I think it’s way too early to be looking at earnings season as a tailwind for equities. I guess that will depend on just how pessimistic investors have become in the run-up to it.

The Fed blackout period may be a blessing this week as it would otherwise give policymakers the chance to talk up the possibility of 100 basis points and really kill the good vibes. The ECB on Thursday has quite the task on its hands considering it hasn’t even hiked once yet and the threat of Nord Stream 1 not making a full comeback from its maintenance period is another potential headwind for the economy and headache for the central bank.

Rewarded for its resilience

Bitcoin is another that’s enjoying a better start to the week. After showing some resilience last week at times, it’s now being rewarded with a 5% rally today which has taken it back above USD 20,000 for the first time in ten days. Is that reason to be more optimistic? Probably not. The moves we’re seeing today more broadly don’t strike me as being sustainable although the fact that the news in the crypto space hasn’t deteriorated any further yet will be encouraging to the community.

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

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

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
Craig Erlam

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