Mild relief

European equity markets are expected to open a little higher on Wednesday following a positive shift on Wall Street on Tuesday, while Asia overnight was a very mixed bag.

Investors appear a little relieved at Fed Chair Jerome Powell sticking to last week’s script despite Friday’s jobs report indicating that the labour market remains red hot. It would appear traders had become a little more defensive on the expectation of a hawkish shift but Powell refrained from taking the leap.

And credit to him for doing so. The central bank, like others, has long talked about one data point not making a trend and while there are causes for concern in last week’s jobs report, it’s not a game changer. Wages are still heading in the right direction, and participation also improved.

That said, we are getting a consistent message from policymakers across various central banks. While headline inflation is falling and will likely fall much further, core services inflation remains a big concern, and tight labour markets make achieving lower wage growth consistent with 2% inflation targets very difficult.

It’s been clear for a while that the journey back to 2% was likely to be more treacherous than the path to peak inflation, and the data in the first quarter in particular, perhaps the second also, was going to highlight that. Recent jobs reports alone have epitomized that and sentiment in the markets is likely to continue mirroring it in the coming months. ​

The year of the crypto revival

Bitcoin also enjoyed some light relief from Powell’s risk rebound overnight and it came at a good moment as the cryptocurrency was beginning to flirt with range lows. It’s now safely back in the middle of a near three-week range and still holding onto the bulk of the new year gains. 2023 may well be the year of the crypto revival.

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

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Craig Erlam

Craig Erlam

Former 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.