Paring gains

Stock markets are paring gains after a phenomenal rebound on Monday and Tuesday as two weeks of losses were wiped out in just two sessions.

It’s been a very impressive relief rally, albeit one aided by a rose-tinted interpretation of certain economic indicators and a terrible plunge in the weeks before. This isn’t the time to get carried away but it is understandable that we’re seeing some relief. It all hangs on whether the data is the start of a weakening trend or just a blip, as with the July inflation drop.

The JOLTS jobs number was more promising than the PMI number as it not only pointed to less tightness in the labour market – an essential precursor to slower rate hikes – but it was a substantial decline that will grab the attention of the central bank. If followed by further indications of rapid deterioration, including the jobs report on Friday, policymakers could be easily convinced to ease their foot off the brake.

No dovish pivot from the RBNZ

The RBNZ hiked rates by 50 basis points overnight to 3.5% and signalled more to come, with policymakers even debating 75 today as core inflation is too high and labour resources scarce. This follows the dovish shift from the RBA on Tuesday, which opted for a slower pace of tightening, something the RBNZ is clearly still a few months away from. Every country has its own challenges and labour resource is clearly a huge hurdle for New Zealand following the pandemic.

Dependent on weaker data

Bitcoin is back above $20,000 thanks to the improvement in risk appetite this week. As we’re seeing elsewhere, its ability to build on that will depend on the potential for further weakness in the economic data this week. While counterintuitive, that’s the world we live in now. Bitcoin has shown resilience to sell-offs though so a failure for the data to deliver could see it well supported.

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

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