By Craig Erlam
A relatively slow session so far in the middle of the week, with the focus very much still on the Federal Reserve and interest rates ahead of the Jackson Hole Symposium that kicks off Thursday.
It seems the fear of what could be said is having a far greater impact on sentiment and the markets than what has actually been communicated in recent weeks. Investors have repeatedly turned a blind eye to Fed commentary since the last meeting which has enabled stock markets to recover a lot of lost ground.
It’s always hard to say how long that will last and whether it will continue as markets have spent much of the last year not on the same page as the Fed and, for good reason. Any trepidation now may simply be a case of groundwork being laid for another rally later if Jerome Powell is deemed to be remotely dovish on Friday, intentionally or otherwise.
Jackson Hole has on occasion in the past been used as a platform to send clear messages to the markets and not always one that is expected. That may be feeding some of the nervousness, but if Powell is going to stick to the script and get through to the markets, he’ll need to be far more convincing than he and his colleagues have managed so far.
Bearish case weakened by Saudi comments
Oil prices were higher again Wednesday, supported once more by reports that OPEC+ could consider cutting output. While this may simply be a case of Saudi Arabia talking up the price, for now, the prospect of the group taking such action effectively removes two of the biggest downside risks for prices.
An Iran nuclear deal was explicitly referenced, so if any deal is announced in the coming weeks, it will be interesting to see what the impact on the price will now be and how quickly OPEC+ reacts.
The global slowdown is another factor that has weighed on the price and it seems that could also trigger lower production. With that in mind, there isn’t a huge amount holding the price back now.
It seems OPEC+ is determined to see the oil price in triple-figures despite the serious headwinds facing the world economy.
Helping the price higher are reports of another hit to supplies from Kazakhstan via the Caspian Pipeline Consortium (CPC) Black Sea terminal. This isn’t the first time that flows from the country through Russia have been disrupted this year and with the outage set to last at least a month, it’s another unwelcome loss.
European gas prices are rising again amid ongoing nerves over new maintenance work to Nord Stream 1 next week. The disruption is set to last three days, but the fear is that it could become much longer. Freeport LNG has also pushed back its restart date to mid-November which is another blow to the bloc as it tries to wean itself off Russian gas.
Gold struggling to recover
Gold is already seeing some resistance after a minor recovery on Tuesday. The dollar has soared higher over the last couple of weeks alongside a bump in US yields and gold has been hit as a result.
The greenback pared gains on Tuesday bringing some reprieve for the yellow metal, but it didn’t last long and it’s marching higher once more. Whether gold breaks $1,730 or not may well depend on what Powell has to say later in the week, as well as whether traders are in the mood to listen, should he stick to his colleagues’ hawkish script.
Bitcoin vulnerable
Bitcoin remains quite stable after last Friday’s shock plunge.
As is the case across financial markets, it seems traders have their sights set on Jackson Hole later this week to dictate the next moves.
It continues to look vulnerable to a break of $20,000 which could be a painful blow, but if Powell says anything that excites the risk-on crowd, we could see it quickly eat away at last week’s loss.
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.
