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Digesting the data

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By Craig Erlam  

Equity markets were off to a difficult start on Monday, no doubt weighed down by the prospect of more rate hikes and tension between the world’s two largest economies.

While there were some promising aspects of Friday’s jobs report – cooling wage growth and higher participation – it’s impossible to ignore the fact that the labour market remains red hot.

No one will be surprised if we see huge revisions next month – we’ve seen some substantial ones recently after all – but for now, it’s hard to argue that the easier policy move for the Federal Reserve is to keep hiking in 25 basis point increments.

The problem the U.S. central bank faces is that while it may get within reach of target fairly quickly, it is likely to be concerned about the last stubborn step that will be difficult without generating a little more slack in the labour market. It’s unlikely to settle well above 2% and hope for the best.

The good news is that there’s plenty more data to come before the next meeting that could soothe some concerns and there’s plenty more time for investors to pick themselves back up.

But the combination of stubborn inflation, more hikes, and a disappointing earnings season is a bitter pill to swallow.

Oil edging higher

Oil prices are a little higher at the start of the week with a few factors potentially behind the move.

Turkey’s decision to temporarily halt flows to the Ceyhan terminal may have lifted prices a little, given the uncertainty around the situation, although, with reports of no damage to pipelines, the impact should be marginal. ​

There is also growing expectation that China will bounce back strongly following the decision to scrap zero-Covid restrictions, which will spur more demand over the course of the year and boost prices.

As the world’s largest importer and second-largest economy, its outlook is a huge factor in the oil market.

The final reason could be more technical, with the price having fallen quite significantly over the last week or so.

Gold in correction territory

Gold has been left licking its wounds after sliding almost 5% from its highs towards the end of last week.

The yellow metal was already looking quite overbought and was struggling for momentum on its most recent surge. So, it was potentially primed for a correction, but the US data finished the job.

It’s trading a little higher Monday, but the rebound has been weak and after such a strong recovery since early November, there could still be a little further to run. The next key level of support below could be around $1,820-1,830.

Bitcoin hanging on

Bitcoin has had a few rough sessions, but broadly speaking it still looks in good shape, sitting within the range it’s traded in over the last couple of weeks and not far from the new year highs.

Not bad, considering the losses we saw elsewhere towards the end of last week.

 

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.