Ending the week in the red

Stock markets turned red again on Friday after spending the earlier part of the week in recovery mode, with yields around the world once again on the rise.

The recovery never looked sustainable and that’s how it’s proving to be. There is still huge uncertainty over the economy, inflation and where interest rates will end up and none of that is conducive to a strong sustainable stock market recovery.

The situation in the UK looks particularly bleak and that’s before you consider the fact that the Conservative party is looking to elect a new leader less than two months after appointing the last. I’m not sure anyone is particularly confident that we’re suddenly going to see stability in government. The fact that Boris Johnson could make a spectacular return to number 10 pretty much sums up how messed up the situation is.

Investors appear to share that pessimism as is evident in the performance of the pound which is down 1% against the dollar again this morning. That’s naturally not been helped by another dreadful retail sales report, with volumes dropping 1.4% last month after a decline of 1.7% the month before.

That further supports the view that the economy is probably already in recession and those pressures will only intensify in the coming months as the Bank of England accelerates its tightening cycle. Although Ben Broadbent did seek to reassure markets, suggesting they were pricing too aggressively which led to expectations being pared back a little.

Yen slides further as BoJ conducts more purchases

The Bank of Japan was active again overnight as it sought to stop the yield on the 10-year JGB from breaking above its 0.25% upper band. This is the second day it has conducted unscheduled purchases in response to market pressures, piling further misery on the yen which has smashed through 150 against the dollar. There’s still no intervention though from the Ministry of Finance though, despite more warnings overnight.

It seems the urgency with which they’re monitoring the situation isn’t in fact that urgent at all. Although considering how ineffective the last intervention was, they may be wondering what exactly the correct policy response is. Sitting and waiting for the dollar to fall isn’t working either though. And it seems the BoJ is in no mood to tweak its yield curve control targets, despite inflation remaining at 3% and core rising to 1.8%.

Bitcoin slipping amid risk aversion

Bitcoin is also in the red at the end of the week, tracking moves in other risk assets. Bitcoin is off around 1.5% compared with losses of more than 2% in Europe and more than 1% in US futures. Still, it’s slipped below $19,000 this morning although that does little to change the outlook. It’s fluctuated around $20,000 for the last couple of months and this morning doesn’t really change that.

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

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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