By Craig Erlam
Stock markets were off to a cautious start on Monday in what is expected to be a massive week in financial markets and the final all-action one of the year.
That’s not to say the next two weeks will be without incident – we can’t be so naive after what 2022 has delivered so far – but participation will be much lower and the calendar much thinner.
And what a week we have in front of us. One that will set the scene for 2023, which in itself will no doubt have plenty of surprises in store, and hopefully leave everyone with a slightly better idea of how much worse things will get.
While the US Fed will be the headline act this week, there’s an abundance of central bank meetings including the ECB, BoE and SNB, among others. Not to mention some big-hitting economic releases like the US CPI on Tuesday which will lay the groundwork for that all-important rate decision and, more importantly, the forecasts.
UK probably still in recession
The UK economy grew more than expected in October, but safe to say, we should probably leave the sparkling wine on ice.
One month of better than expected growth, even at 0.5%, doesn’t change the fact that the economy is under immense pressure and probably in a recession that will last well into next year.
The rebound, while partially a reflection of stronger spending on cars and construction, was also boosted by the extra bank holiday a month earlier.
The trend remains weak and November and December will be extremely tough for many households facing a severe cost-of-living crisis. And the cold snap we’re now experiencing is going to eat away at disposable income as those that can afford to are forced to crank up the heating.
Oil volatility to continue
Another volatile start to the week in oil markets, where Brent and WTI found themselves around 3% higher on the day. This comes after WTI fell close to $70 a barrel, the level at which the White House previously indicated it will begin refilling the SPR which could provide some initial support for the price.
The outage on the keystone pipeline between Canada and the US could be offering further support for the price, as could renewed Russian threats to cut supply in response to the G7 price cap and refusal to sell to any participating countries.
Expect prices to remain volatile against the backdrop of these and many other factors.
Choppy ahead of the Fed
Gold remains volatile ahead of the inflation data and Fed decision this week. It’s continuing to see resistance around $1,810 on rallies but there’s clearly still plenty of bullish appetite as is evidenced by the series of higher lows over the last few weeks.
It saw support on Monday around $1,780, where the yellow metal saw resistance last month during the initial surge. These levels may remain key in the run up to Tuesday’s inflation release.
Continuing to stabilise
Bitcoin continuing to stabilise around $17,000, at the level it has fluctuated throughout this month.
Which way it breaks next may also depend on events over the next 48 hours with the CPI report and Fed decision.
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.
