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All eyes on U.S. CPI

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By Craig Erlam

Stock markets are tentatively higher in Asia Tuesday, while Europe and the US are poised for a similarly modest start to trade in what is the start of a hectic 72 hours in the markets.

For many weeks now, the December Fed decision has dominated the minds of traders, while sentiment in the markets has been dictated by how small changes in various data points influence the outcome of the meeting.

When a meeting or event generates this much hype, it can often disappoint and be something of an anticlimax, but I’m not sure that will be the case this time. It’s not so much the decision itself, but what accompanies it that will set the stage for next year.

For so long the question has been, will the Fed hike into a recession?

During that time, it’s remained convinced that a soft landing can be achieved and the resilience of the economic data has supported that, but unfortunately, the same resilience has also supported the case for more hikes and a higher terminal rate.

Last month’s CPI release gave investors real hope that in much the same way that inflation’s acceleration higher this year blew expectations out of the water, the path lower may also not be as gradual as feared.

Unfortunately, some of the data since then hasn’t been so favourable – most notably the wages component of the jobs report – so a lot is now hanging on Tuesday’s release for November. Another number below forecasts of around 7.3%, year on year, could get the excitement flowing once more.

Jobs data keeps pressure on BoE

The pound is relatively steady after the release of the UK jobs data that was in line with market expectations. Unemployment rose marginally to 3.7%, while wages rose by 6.1%.

While the data does indicate some additional slack in the labour market, the wages number – despite falling well short of inflation – will be of concern to the BoE and ensure its foot remains firmly on the brake in the short term.

Oil bouncing back

Oil prices are advancing again Tuesday, with Brent approaching $80 a barrel and WTI nearing $75. This comes amid further relaxations of Covid curbs in China, the threat of lower Russian output in response to the G7 price cap, an outage on the Keystone pipeline in the US, and the promise of US purchases around $70.

That’s a lot of supportive factors for the price, even in what appears to be an environment tilted towards oversupply. Suddenly there appears more upside risk than downside, which could keep prices slipping below $70 for the foreseeable future.

Awaiting CPI data

Gold remains in consolidation ahead of the CPI data.

Last month’s release helped drive gold prices higher on the back of a promising Fed statement and jobs report. Of course, recent data hasn’t been quite so bullish for the yellow metal, but a weaker inflation reading on Tuesday could get it back on track ahead of Wednesday’s Fed decision.

The key level to the upside remains $1,810, with gold seeing support around $1,780.

BTC steady despite FTX, Binance concerns

Bitcoin continues to trade around $17,000, undeterred by reports of Sam Bankman-Fried’s arrest and possible charges for money laundering against Binance.

Withdrawals on the platform highlight the uncertainty and shattered confidence in the crypto space, a desperation not to be caught up in another FTX event. Even when the situation looks very different.

But that’s what fear does, especially in a situation where confidence has been so severely damaged, as it has in recent weeks.

 

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.