By Edward Moya
US stocks turned positive after the Fed’s James Bullard stated that markets might be over-pricing US recession risk. Bullard said his projections for rates are to reach 5.375%, which implies 75 bps more in rate increases.
The St Louis Federal Reserve chairman is one of the more hawkish members, so if he thinks we only have a little way to go here, the peak in rates might be properly priced in.
The disagreement between the Fed and markets on how high rates to go might be over and that could provide a tentative boost for stocks.
China’s top diplomat, Wang Yi said his country is willing to deepen ties with Russia. Wang is expected to meet President Putin on Wednesday.
China is well aware that more sanctions could be coming their way. The West is concerned China could be providing weapons to Russia, while China has continued to deny claims that they are supporting Russia with weapons.
Vladimir Putin’s comments on China emphasised that ‘everything is progressing, developing’. It appears the Russian President is confident that whatever extra western sanctions come towards China, it won’t derail their relationship.
Deglobalisation is not going away anytime soon and that ultimately should prove to be very inflationary.
The New Zealand central bank (RBNZ) raised its key rate by a half-point to 4.75% and kept its forecast for it to peak at 5.50%. Rates are at a 14-year high after the downshift 50 bps rate rise.
They noted a consideration for a 75-basis point increase, but not a quarter point hike.
RBNZ Governor Orr still expects a recession over a 9-12-month period, which means they expect growth to take a big hit as policy gets even more restrictive.
Crude prices pared losses after interruptions with the Caspian Pipeline Consortium could make Kazakhstan curb its output. The CPC terminal is vital for taking oil from Kazakh and Russian fields and bad weather has stopped it from loading tankers on February 19th.
Oil is still feeling heavy as energy traders anticipate a hawkish Fed will contemplate larger rate hikes that will likely send the US economy into a recession.
Energy traders not only have to keep up with all the latest supply and demand drivers, but also on how much the dollar might rebound given the Fed’s tightening path. Oil will likely remain heavy here as inventories are up, refinery maintenance is here, and on global growth concerns.
Gold prices are slightly higher as the bond market selloff takes a break ahead of the FOMC minutes.
The bond market will need very hawkish minutes for the 10-year to break above the 4.00%, which could spell trouble for gold. The big question is if the minutes will open the door for some to expect four more Fed rate hikes.
After Fed Bullard’s peak of 5.375% comment, traders might not expect them to be that hawkish.
Very hawkish Fed minutes could happen, but will it take gold back below last week’s lows of $1827?
Bitcoin is edging lower ahead of the FOMC minutes.
The leading crypto’s small decline is meaningless as traders brace for what many believe could be hawkish Fed minutes.
Bitcoin’s rally has stalled at $25,250 and depending on what happens with risk appetite at 2pm EST could determine if we see the February consolidation continue or if we have a breakout.
If the $25,500 level is reached, momentum traders might try to support a rally towards the psychological $30,000. If bearish momentum returns, Bitcoin has strong support at the $22,500 region.
Edward Moya is Senior Market Analyst, The Americas 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.