By Craig Erlam
European stocks were off to a positive start on Monday, following a relatively muted day in Asia amid bank holiday closures in China, Hong Kong and South Korea.
UK growth struggles
The UK economy grew slightly less than expected in July, with growth supported by consumer-facing services on the back of the Women’s Euros and the Commonwealth Games.
With the additional bank holiday this month, the economy could be facing a small technical recession, albeit one that won’t be nearly as bad as was expected prior to the cap on energy bills.
There’s a lot more data to come this week which should show consumer spending slipping as inflation remains above 10% and the labour market still strong.
Yen slips once more
The Japanese yen is slipping again at the start of the week despite continuous warnings from officials about the movements in the currency.
While they continue to stress the urgency with which they view the unjustified moves, they’ve so far shown to be all talk and no action, so the warnings are increasingly falling on deaf ears.
US inflation on Tuesday
There’ll be a heavy focus on the US this week as traders await CPI data on Tuesday.
The release follows another flurry of hawkish Fed speak. It seems policymakers were keen to reinforce their hawkish position ahead of the blackout period – which we’re now in – potentially with an eye on that data point.
They’ll have no opportunity to react to the release ahead of the meeting and there was perhaps a feeling that a softer reading could see market expectations slip, which they clearly want to avoid.
It will be interesting to see how traders respond as we’ve seen how keen they are to hop aboard the “dovish pivot” train before.
Oil has recovered earlier losses to trade around 1% higher.
Crude could extend its winning run to three sessions if it holds on, recovering from the lows which came on the back of lower global growth expectations and Covid lockdowns in China. Those restrictions could see annual Chinese demand fall for the first time in 20 years in a further sign of the struggles facing the world’s second largest economy.
While the focus may be on the demand side, we can’t ignore OPEC+ and its recent warnings about volatile price action and the disconnect with fundamentals.
The group sent a warning shot earlier this month and may be tempted to send another prior to the October meeting. The recovery in the price may be supported by that, alongside a broader improvement in risk appetite in the markets and a weaker dollar.
Gold’s cautious recovery
Gold continues to enjoy a small recovery, albeit one that is not without resistance.
Since hitting a bottom earlier this month, it’s been a stuttered rebound in gold which perhaps highlights the hesitance to get behind it in the markets.
The dollar has pared gains in recent days which has helped gold to add to those gains, but even now it’s seeing strong resistance around $1,730 which was previously a key level of support. We could see it overcome that if the dollar continues to trend lower but that ultimately depends on the US inflation data on Tuesday.
Bitcoin’s strong rebound
The recovery in bitcoin since the end of last week has been very strong, with the rally topping 4% again on Monday.
Whether it’s the expectation of a dovish shift, a weaker dollar or just an improvement in broader risk appetite, something is giving cryptos a big boost and that’s helped bitcoin hit its highest level since it went into freefall on 19 August
Things may be looking up in the short term, although once more, that may well depend on the inflation data.
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.