A pinch of salt

Equity markets are heading for a positive start to the session, paring Wednesday’s gains as investors digest the latest Fed minutes.

The usual caveat applies to the minutes, being that a lot of time has passed, and to a great extent, the contents of them are either outdated or known. Still, as we saw on Wednesday, that doesn’t always matter and markets can still respond accordingly.

The starkest takeaway was arguably that some policymakers could have gotten behind another 50 basis point increase and all backed further tightening ahead. While that aligns with some commentary we’ve had recently, the meeting took place before the jobs and inflation reports, and the retail sales data for January, all of which were very strong.

So either policy makers came to this judgment in anticipation of those reports or they did it despite a series of softer prints that had convinced investors that the end of the tightening cycle was just around the corner.

While I do take Fed commentary with a relative pinch of salt – as I believe the plan has always been to remain hawkish and keep financial conditions tight until the last minute and then quickly pivot once success is all but assured – the latter may well indicate that at least a few hikes are planned and any hope of cuts this year are, as communicated, slim.

That could be the difference between a recession and a soft landing, although again, I take these warnings with a large pinch of salt. If January proves to be a blip in the data due in part to warmer weather – and the fact that bumps in the road back to 2% were always highly likely – we could quickly see market pricing shift once more. And we’ll get another full round of data before the next meeting which will give us a much better idea of whether this is a blip or a trend.

Growing belief

Bitcoin is continuing to show remarkable resilience as it trades up 2% today and back above $24,000. Don’t get me wrong, it’s not alone in doing so, we’re seeing similar in equity markets although to a lesser extent. There’s clearly belief returning to crypto markets and some confidence that the darkest days are behind it. If the newsflow can remain onside then that could prove to be the case and a break of $24,500-$25,500 could further fuel that belief.

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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