Another rebound despite hawkish Fed

It’s been a remarkable week so far in financial markets and it seems there’s still plenty more to come.

It’s been a tough month for investors, forced to watch on as central bank tightening expectations hammered risk appetite and, in turn, stock markets. This has been largely accepted as a consequence of inflation being allowed to run hot for too long but this week, the fightback has started.

Monday’s turnaround was incredible. The latest blow came from the geopolitical arena and at one stage, it looked like investors were out for the count but they picked themselves up and somehow found the upper hand. On Tuesday, it was Microsoft that landed a late blow but once more, stock markets quickly recovered and went into the Fed decision on the front foot.

By the time Powell arrived on the scene and delivered what could have been the knockout punch, investors were full of belief and today we’re seeing the benefit of the fightback earlier in the week. Rather than rolling over, defeated at the thought of five Fed hikes next year, investors are seizing on the lower valuations and the US has kicked off trading on Thursday on a strong note.

Whether that can be sustained over the coming weeks, we’ll see, but this week will give investors more confidence. Naturally, it’s helped by data showing the economy grew by 6.9% in the last quarter, capping off a strong year of growth, which along with a tight labour market may offer encouragement that higher inflation and interest rates won’t derail the recovery in 2022.

Bitcoin making a comeback?

Bitcoin is certainly enjoying the relief that this week has brought. The cryptocurrency was getting into dangerous territory but has recovered well as sentiment has improved and now looks in a much more comfortable position. Of course, volatility is still here and there’s plenty of underlying anxiety in the market that could see bitcoin tumble again but suddenly, USD 40,000 is looking more vulnerable than USD 30,000. A move above here could be the catalyst that the crypto crowd has been craving.

For a look at all of today’s economic events, check out our economic calendar:

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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