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Huge uncertainty in week ahead

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By Craig Erlam

Uncertainty sums up the feeling in the markets at the moment and that is highlighted by the moves seen on the opening day of the week.

Equity markets in Asia were a mixed bag, with the Shanghai Composite and Hang Seng making decent losses, while those elsewhere made steady gains. Europe was slightly in the green, while the US was a sea of red, with tech shares being hit particularly hard.

There’s going to be a lot to take in this week, from the Fed on Wednesday, to the jobs report on Friday, BoE on Wednesday, earnings season, and much more. Perhaps it’s not surprising to see some jitters creeping back in.

A troubling period for the eurozone

Monday’s data didn’t help to settle nerves. Europe is facing a highly uncertain few months as it navigates an uncertain winter in which a long bout of cold weather could take the economy down. And even before it, the cracks are not just appearing, they’re getting larger by the day.

Inflation hit a new record high of 10.7%, well ahead of expectations, while the core reading unexpectedly jumped to 5%. Meanwhile, growth in the third quarter almost ground to a halt at 0.2% and that’s unlikely to significantly improve any time soon.

Needless to say, the hardest days lie ahead and the bloc will be hoping that efforts to fill gas stocks and some favourable weather could see them through the winter. The ECB, on the other hand, is beyond being able to cross its fingers and hope for the best.

Restrictions weigh on Chinese PMIs

The week got off to a tough start after China released PMI data that was unsurprisingly poor. The data was hampered by Covid restrictions, but that has become a persistent headwind for the economy and it’s unlikely to change any time soon. What’s more, the weakness was widespread and while infrastructure stimulus may alleviate some of this, it’s not going to make it go away.

Oil eases

Oil prices were a little lower on Monday although nothing has dramatically changed in recent weeks as far as the outlook is concerned. The global economy is facing major challenges, even recession, OPEC+ is prepared to make unpopular cuts alongside member Russia, whose war in Ukraine has been a dominant driver of market volatility.

China’s economic stumble driven partly by its commitment to zero-Covid also continues to dampen the outlook for demand. Brent continues to settle in the $90-100 range which all parties may just about accept for now. Well, after the midterms for a little while perhaps.

Make or break for gold?

Gold continues to see choppy trades, but its outlook hasn’t improved at all, with rallies continuing to face significant resistance and $1,600-1,620 looking very vulnerable.

Its resilience will be put to the test this week though, given the Fed meeting on Wednesday and US jobs report on Friday. Not to mention the scattering of data around those events.

Time will tell whether it proves to be the week that starts the resurgence or the straw that breaks the camel’s back.

Bitcoin loses momentum

Bitcoin was off more than 1% on Monday following a pretty disappointing weekend. The recovery in the price over the last week has seen it climb back above $20,000 for the first time in a few weeks, but it’s already struggling on the momentum front.

A move back below $20,000 wouldn’t be anything to be concerned about. As we’ve seen in recent months, it’s largely fluctuated around this level rather than being overly sensitive to it.

 

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.