Bouncing back despite Fed warnings

Stock markets are a little higher after turning lower on Tuesday amid nerves over Nancy Pelosi’s Taiwan visit.

This week was already shaping up to be another rollercoaster ride and Pelosi’s trip just added another layer of event risk for the markets. There will be hope following the initial response from Beijing that any escalation won’t be too severe, although relations between the world’s largest economies are clearly hugely strained and deteriorating.

Compounding the moves in the markets yesterday were comments from Fed officials that should not have come as a surprise to investors but highlighted how ahead of themselves they’d got. The idea that the shift to data-dependency was an automatic precursor to fewer hikes despite no concrete signs of inflation abating was hopeful, to put it mildly.

The September meeting feels a long time away and plenty could change in that time that would allow for slower tightening. That includes two sets of inflation data and two jobs reports, all of which and more will guide the Fed seven weeks from today. We should know better by now than to be too optimistic when it comes to inflation and that may come back to haunt the markets.

Data is nothing to be excited about

The services PMIs from China and Europe this morning weren’t quite as concerning as their manufacturing counterparts on Monday, there were even some positive surprises in there, but the broader picture remains quite bleak. A 1.2% decline in retail sales further highlighted the struggles facing the euro area amid mounting price pressures and a troubling winter to come.

The better-than-expected PMIs from China, Spain, France and Germany were welcome but I’m not convinced of their sustainability. And in the case of Germany, it was still contractionary so certainly not something to get excited about. The US is up next after the open and a disappointing reading could compound yesterday’s negative shift.

Bitcoin bounces back again but the rebound remains unconvincing

Bitcoin didn’t fare too badly as a result of the Fed offensive or Pelosi’s trip to Taiwan, perhaps a sign that risk appetite wasn’t too hindered by either event. In fact, it’s already surpassed yesterday’s highs and it is more than 1% higher on the day. A corrective move in recent days appears to have drawn some back in. Whether they’ll be rewarded is hard to say as I remain unconvinced by the rebound of the last six weeks. And not just in 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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