The Board of Governors of the U.S. Federal Reserve
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Awaiting the Fed minutes

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By Craig Erlam

Equity markets appear to be treading water on Wednesday as we await the latest batch of FOMC minutes later in the day.

Asia played catchup overnight after Europe and the US posted decent gains on Tuesday that built throughout the session. But futures on both sides of the pond are barely changed from Tuesday’s close which may change.

I’m not sure whether it’s the FOMC minutes release, the Thanksgiving bank holiday, or just the lack of major catalysts that are driving the inactivity in futures markets.

There’s also a huge amount of data on Wednesday’s calendar which could get things moving, including flash PMIs, as well as US durable goods, home sales, consumer sentiment, and jobless claims.

The Fed minutes are obviously the standout here, although I do wonder what exactly we’re going to learn from them that isn’t already evident from the decision, statement, press conference, and flurry of central bank commentary since the event took place.

Often it’s not the substance of the minutes but the subtle changes that investors get carried away with.

The dovish pivot that may or may not have actually been, was the focus in recent weeks, with Fed commentary since then not exactly clearing anything up.

Investors may be on the hunt for clues that they’ve acted prematurely, or that there’s more support for such a slowdown in tightening and less for a higher terminal rate than they previously thought.

Either way, the potential for a big response may be what’s creating this paralysis in the markets. And as can often be the case, it may all be for nothing if the minutes do in fact tell us nothing we already don’t know.

This could leave us none-the-wiser about the terminal rate, but perhaps more assured that 0.5% is more likely in December than not. Of course, the inflation data shortly before the meeting could change that.

RBNZ accelerates tightening

The RBNZ accelerated its pace of tightening with a record 75-basis point hike which was in line with expectations. There was plenty of volatility in the New Zealand dollar around the release, though, as the central bank set a much higher terminal rate and forecast a recession starting next year.

A more aggressive approach, in its view, is needed to get inflation back to the target range of 1-3% as the labour market is too tight and inflation is at risk of becoming increasingly embedded.

Is oil output hike feasible?

Oil prices are marginally higher on Wednesday, continuing the recovery from a sell-off that was triggered by speculation that OPEC+ could consider a significant hike in output when it meets early next month.

The move would come as a surprise considering its 2 million barrel cut last month, the deteriorating economic outlook, Chinese Covid restrictions, and the uncertainty around the Russian oil price cap.

Of course, the cap may be part of the reason for the discussions, if they have in fact taken place.

Without the backing of Russia, that would create a whole new dynamic within the group, even threaten the “+” element, which would be a big shock.

Those rumours have been strongly denied, which is why the price has recovered its losses. The only issue now is the economy, China, and what impact the G7 decision will have on Russian output. I don’t think volatility is going anywhere.

FOMC minutes a catalyst for Gold breakout?

Gold appears to have established a range over the last week, with the upper end falling around $1,780 – a major area of support in the first half of the year – and the lower around $1,730 – a major barrier of resistance in September and October.

The FOMC minutes may determine which of these levels gives way first and whether gold can build on its recovery rally this month after such a long period of declines.

Is case for $10,000 greater than $20,000?

Bitcoin is in the green for a second day, up more than 2% and desperately trying to establish a bottom in the market. That may be easier said than done at a time when the headlines are far from favourable due to the fallout from the FTX collapse.

Everyone is wondering who the next victim will be and whether this debacle will uncover similar practices in other areas of the market. Against that backdrop, it’s hard to imagine bitcoin managing any kind of significant, sustainable recovery.

The next area of resistance falls around $17,500, a break of which could make things more interesting.

But that could be very difficult to overcome. There’s arguably a greater case for the price to fall to $10,000 at the moment, than rising to $20,000. ​

 

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.