By Craig Erlam
Stock markets endured another negative day on Wednesday in Europe as investors await Thursday’s hotly-anticipated ECB meeting.
Much like the other two days this week, it’s hard to read too much into trading as there’s very little of note driving it. And with the ECB, US inflation on Friday and the Fed next week, there are far more pressing matters ahead than the selection of headlines of recent days.
The World Bank warning of potential recessions, a UK Prime Minster barely surviving a confidence vote and a major US retailer lowering profit guidance as a result of excess inventory, have been among the focal points this week. But they all comfortably play second fiddle to what’s to come over the next seven days.
The ECB is up first and the European central bank has a lot of questions to answer.
When will net asset purchases officially end? How many rate hikes can we expect this year? How will they manage the fallout in the bond markets?
The task is far from straightforward, but the cost of inaction is potentially severe. The central bank will have to tread carefully in the coming months to prevent unwanted consequences.
Oil prices edged higher once more, even as the EIA reported a surprise increase in inventories last week. The market remains extremely tight and that is keeping the upward pressure on crude prices.
The OPEC+ increase was more a token gesture than one of substance and the continued reopening of China means demand is going to rise further.
To make matters worse, oil workers in Norway could begin strike action this weekend causing supply disruptions to a relatively small amount of output, to begin with.
Gold steady ahead of US inflation
Gold is back above $1,850 but continues to fluctuate in the same range it has for many weeks now.
For gold, it’s all about the US inflation data on Friday and the Fed next week. Any surprises in the inflation data could shake things up in the markets and see the yellow metal break the recent range, perhaps even quite aggressively.
While a US recession isn’t the base case at the moment, a few more nasty surprises on the inflation front could see that change.
BTC volatile but not going anywhere
We continue to see plenty of volatility in bitcoin, but very little actual direction. The daily ranges are wider but the end result is the same. This could be another that is awaiting the inflation data before deciding where to head next.
The set-up is still bearish at this point but as ever, it may not take much to tilt that the other way and a significant break of $32,000 could deliver just that.
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.