By Craig Erlam
It’s been a promising start to the week in financial markets, albeit one built on surprising optimism ahead of Tuesday’s US inflation report.
I would expect to see a little more apprehension, even anxiety, in the run-up to the release after the recent jobs report left investors on edge. In an ideal world, slack would be gradually appearing in the labour market as inflation steadily fell to 2%, allowing the Fed to take its foot off the break.
As soon as one of these isn’t playing ball, the other has to up its game.
So far, inflation has done that to some extent. The decline from the peak has been very welcome and led to a repricing of the terminal rate.
But that was undone to an extent by the latest jobs report that confirmed the labour market remains extraordinarily tight.
Suddenly, there’s no wiggle room in the inflation data. A slight setback could be a major blow and leave at least two more hikes, maybe more, on the cards.
Which makes this buoyant start to the week all the more intriguing.
Seller’s market in the Premier League
I couldn’t pass up the opportunity to include a little football commentary in my note, with Manchester United shares rising once more amid takeover speculation.
Investors are understandably happy about the prospect of a Qatar bid being prepared to rival that of Sir Jim Ratcliffe, who is also reportedly very interested in acquiring his boyhood club.
With the Glazer family reportedly demanding a high price for the club – around £5 billion – this could be the perfect outcome, alongside any other interest, as it could trigger a bidding war among people with more than just business in mind.
No doubt the owners of rivals Liverpool, FSG, will have a keen eye on how the process evolves having previously indicated an interest to sell a part or all of the club. Following the sale of Chelsea to Todd Boehly last year, it would appear the seller’s market has extended beyond transfers.
Profit-taking ahead of CPI
Oil prices are a little lower at the beginning of the week. Last week saw them bounce back strongly on optimism around China’s economic recovery, post Covid transition.
We are perhaps seeing some profit-taking now ahead of Tuesday’s inflation report which could have a big impact on sentiment one way or another.
Another favourable inflation report could see oil test the highs of December and January around $82 in WTI and $89 in Brent. They haven’t been able to break that barrier yet, despite the optimism around China, but the prospect of a lower US terminal rate and soft landing could be enough to break through.
Gold correction ongoing
Gold is struggling a little on Monday, off more than half a percent and hitting its lowest level since early January. The correction it would appear is ongoing, with $1,820-$1,830 the next test of support, followed by $1,780-$1,800 which still looks more interesting.
Ultimately, whether it remains in a corrective phase probably depends on Tuesday’s inflation data and it could take something much lower for it to bounce back, following the January jobs report.
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.