Wall Street sign (photo: Vlad Lazarenko)
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Choppy markets continue

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By Craig Erlam

Tuesday was another choppy day in financial markets with Europe ending a mixed bag and US indices all in the red, but to varying degrees.

Markets are indicative of the uncertainty we continue to see from Ukraine-Russia negotiations, to sanctions, interest rates, recession warnings, lockdowns, etc. There’s no end to the uncertainty, which makes the resilience we’re seeing in stock markets all the more impressive.

Europe and the US continue to tighten sanctions against Russia, albeit with the EU still held back by its over-reliance on oil and gas. Recent events suggest the Kremlin remains undeterred, even if negotiations continue to take place. It’s hard to be particularly optimistic on that front, but we live in hope.

It seems investors do, too, because against the backdrop of high inflation, rapidly rising interest rate expectations, recession warnings and very high commodity prices, US indices are a mere 5% from all-time highs.

The PMIs look healthy as countries rebounded from the Covid Omicron slowdown, but given the risks that lie ahead, and the impact of higher inflation, it’s clear that the risks for the data in the coming months are firmly tilted to the downside.

Oil pares gains

Oil prices were slipping a little on Tuesday after rebounding at the start of the week. The threat of European sanctions on Russian oil remains an upside risk for crude prices, despite the firm opposition in the short term from certain member states.

The release of reserves has helped take some of the pressure off amid disruptions to Russian supply, but this is still a tight market and greater risks continue to be to the upside.

That said, the trend in recent weeks has broadly been one of consolidation, albeit following an extremely volatile period, and what we’ve seen so far this week doesn’t suggest anything has changed.

Gold slips back

Gold continues to consolidate above $1,900, with the yellow metal making small losses, while lacking any real longer-term direction.

That case could be made across various asset classes at the moment, which is perhaps a sign of the limbo investors find themselves in; recession risks but a hot economy, peace talks without any sign of peace, etc.

It’s interesting that the rallies are failing a little earlier each time over recent weeks, which could be a sign of weakness, but as it is, there remains plenty of appetite for a safe haven and inflation hedge.

Bitcoin breakout still a bullish signal

Bitcoin has failed to build on the breakout momentum over the last couple of weeks which may disappoint some, but it probably shouldn’t.

We’re seeing consolidation across financial markets right now and bitcoin is clearly not immune. The breakout could still be a strong signal, but just not the explosive one we’re used to in this space.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.