By Craig Erlam
It hasn’t been the most thrilling start to the week, but the good news is that it should improve from here as the US rejoins and the economic calendar fills out.
We were basically treading water on Monday which is often the case on a US bank holiday. The fact that the calendar was as thin as it was elsewhere naturally doesn’t help and it may be no bad thing either.
We’ve become so accustomed to relentless action in the markets this past year in particular, that a day of calm can be a good thing. But don’t expect it to last.
This week may not be as all-action as others we’ve experienced this month, but there is still plenty for investors to get their teeth stuck into.
Tuesday is littered with economic releases throughout, with the PMIs being a key feature.
At a time of such uncertainty over inflation, interest rates, and the economy, these forward-looking business surveys carry extra weight. And what’s more, they’re expected to show businesses are becoming less pessimistic, which would be a small win, but a win nonetheless.
That said, the Japanese manufacturing PMI was expected to do just that and instead dipped much further into contraction territory.
The decline was driven by lower output, new orders, and new export orders; once again indicating waning global demand and trade. The services survey was much better, but that is being driven by improved tourism as restrictions were removed, and government support.
All in all, there are more concerning signs than promising ones.
The RBA minutes from earlier this month highlighted how unnerved policymakers are by recent inflation developments, with a pause in tightening not even discussed, despite that at one stage appearing to be where the Australian central bank was heading.
In fact, the debate centered around whether there was a need to accelerate the hiking cycle, which may unsettle investors that have become more relaxed on the belief that the end is near.
The message, often not heard, from policymakers around the world has consistently been that there’s more to do and that rates may need to stay higher for longer, but investors have not always been receptive to that.
That seems to be changing and a 50-basis point hike would have very much driven that home, but the RBA instead opted for 25bp this time, backed by the belief that monthly meetings allow for a more gradual exit.
Choppy trading continues for oil
Oil remains choppy this week with Brent and WTI slipping around 1% in early trade on Tuesday, wiping out similar gains at the start of the week.
There is undoubtedly more optimism around the Chinese economy which will stimulate more demand this year, but at the same time, sentiment is cooling on the global economy as interest rates are projected to go a little higher than previously anticipated.
This was always likely to be a quarter of big swings in sentiment as it was too much to ask for the inflation data to simply retreat back without any setbacks along the way.
That naturally has consequences for economic expectations and therefore oil demand, which is why we could see the market remain choppy over the rest of this quarter and into next.
Gold correction losing momentum
Gold is edging lower once more on Tuesday following some choppy trade at the start of the week.
While bulls may be encouraged by Friday’s rebound, others may take a little more convincing. That it came around notable support, in the $1,820 region, and on weaker momentum could be the biggest sign that the corrective move is seeing a pushback.
That isn’t to say it’s fully run its course and we could see the yellow metal pare losses before the correction continues, but near-term prospects are looking a little more promising.
The first test in any recovery may come around $1,860, with $1,890-1,900 then being a major test of resistance.
Can bitcoin overcome major resistance?
There is no shortage of optimism in bitcoin this year and it’s continuing to push higher again on Tuesday.
The cryptocurrency is trading close to $25,000, a huge test considering the scale of recovery we’ve seen in the last seven weeks.
The region around $24,500-25,500 was big on the way down so it will be a big psychological test this time around, too. But with bitcoin up around 50% already this year, you have to wonder how much further it can go.
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.