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Flat start to the week

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By Craig Erlam

There’s mild risk aversion in the markets at the start of the week, perhaps some apprehension ahead of what could be a big few days for the U.S.

The jobs report on Friday remained strong, which supports the view that the Federal Reserve won’t ease off the brakes just yet, much to the dismay of equity investors. They may still be hoping that this week’s inflation data will swing the central bank, but given previous comments, that doesn’t appear realistic unless we see a significant miss to the downside. ​

It’s a big week for the US, with the Fed minutes also being released on Wednesday and retail sales on Friday. Earnings season also kicks off later this week which will offer crucial insight into how corporate America views aggressive monetary tightening and the outlook for the economy.

I don’t expect it will be a particularly upbeat few weeks.

Another PR blunder

The UK government has unsuccessfully sought to bring some calm to the markets by announcing it will bring the budget forward to 31st October. A bit of a PR own-goal if it turns into a horror show, with the Halloween headlines writing themselves. As if there wasn’t already enough pressure on the new Chancellor to deliver.

Markets clearly aren’t feeling optimistic, with the pound trending lower once more and bond yields on the rise.

Yields on 10 and 30-year debt are now not far from the post-mini-budget peaks which is hardly a vote of confidence in the Chancellor to deliver. Bank of England interest rate expectations have been pared back though, with markets viewing the meeting on 3 November as a coin flip between 1% and 1.25%.

Oil higher despite weak Chinese PMI

Oil prices continue to edge higher at the start of the week, albeit at a much slower pace with Brent now not far from $100 a barrel. OPEC+ may be comfortable with that after slashing output targets by two million barrels per day, but I’m not sure anyone else will be.

The Chinese PMI data overnight highlighted the challenges facing the world’s largest crude importer as it tries to balance its zero-Covid policy with economic growth. That may have helped take some steam out of the rally on Monday, but it didn’t last.

Gold tumbles below $1,700

Gold slipped by more than 1%, far outweighing the modest rally in the dollar at the start of the week.

The yellow metal is on course for the fourth day of losses amid a resurgent greenback and dwindling faith in slower monetary tightening. Yields are up around the world on Monday and that’s going to be further pressuring gold.

A move back below $1,700 is another worrying move which could wipe out any enthusiasm generated during the late-September, early-October rally.

Back below $20,000

Bitcoin is also struggling at the start of the week, after breaking below $20,000 on Friday and failing to recapture those losses over the weekend.

Ultimately, little has changed though. The cryptocurrency has been fluctuating around $20,000 for months and that remains the case now.

 

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.