Off to a good start

Equity markets rebound

Stock markets are off to a bright start on Monday, bouncing back well after Friday’s downbeat end to the week.

There was an abundance of event risk last week and rather than inspire, it seemed to push investors to the sidelines and it never really took off. Friday was a bit of a negative way to wrap things up but looking back, it wasn’t really an accurate reflection of how events unfolded. Perhaps month-end had a hand to play in that.

Earnings are still very strong, despite the downside risks to the outlook for many companies and the Fed was very balanced which should keep a taper tantrum at bay. Risks naturally remain, not least the impact that delta will have on the various populations, behaviour and restrictions but there’s plenty of cause for optimism going into year-end.

The introduction of a 1 trillion dollar infrastructure bill into the Senate may be giving sentiment a bit of a bump at the start of the week. There is still some way to go but this was an important step towards some much-needed investment.

A mixed bag of PMI data

The PMIs we’ve seen from around the globe on Monday highlight the collective challenges facing manufacturers but also the vast differences between countries as a result of vaccine rollouts. The common complaint is unsurprisingly on the supply side which is causing higher input costs, much to the unease of central banks that are seeing higher inflation as a result. Although the widely held belief is that it is temporary and will relieve itself once supply shortages are overcome.

Covid remains a massive downside risk for many countries, especially those with very low vaccine rates and that’s likely to continue to weigh heavily going forward as the delta variant spreads rapidly. Regional differences in the vaccine distribution are going to create big disparities between the economic recoveries we see, with major developed nations seeing the greatest benefits this year and next.

Bitcoin corrects after breaking key resistance

It seems we’re seeing some profit-taking in bitcoin after the crypto broke USD 41,000 – a level it’s struggled with since late May. A move above here could have been the catalyst for one of those turbo-charged rallies we’ve seen so often before but instead we’re seeing a more patient approach.

Prices have cooled over the weekend and today and we find ourselves back below USD 40,000. The price saw support around USD 38,300 on Friday so that will be the first test if it continues to fall. I will be surprised to see this pullback gather any significant momentum though. Price action has turned a lot more bullish in recent weeks, this is just looking like a small corrective move.

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.