By Craig Erlam
Equity markets headed to a positive start to the session, paring Wednesday’s gains as investors digest the latest Fed minutes.
The usual caveat applies to the FOMC minutes, being that a lot of time has passed, and to a great extent, the contents of them are either outdated or known. Still, as we saw on Wednesday, that doesn’t always matter and markets can still respond accordingly.
The starkest takeaway was arguably that some policymakers could have gotten behind another 50 basis point increase and all backed further tightening ahead. While that aligns with some commentary we’ve had recently, the meeting took place before the jobs and inflation reports, and the retail sales data for January, all of which were very strong.
Either policymakers came to this judgement in anticipation of those reports or they did it despite a series of softer prints that had convinced investors that the end of the tightening cycle was just around the corner.
While I do take Fed commentary with a relative pinch of salt – as I believe the plan has always been to remain hawkish and keep financial conditions tight until the last minute and then quickly pivot once success is all but assured – the latter may well indicate that at least a few hikes are planned and any hope of cuts this year are, as communicated, slim.
That could be the difference between a recession and a soft landing, although again, I take these warnings with a large pinch of salt.
If January proves to be a blip in the data due in part to warmer weather – and the fact that bumps in the road back to 2% were always highly likely – we could quickly see market pricing shift once more.
And we’ll get another full round of data before the next meeting which will give us a much better idea of whether this is a blip or a trend.
Oil markets continue to consolidate, albeit at a glacial pace, and on Thursday we’re seeing prices creep higher just as they near the lows from earlier this month
While traders remain optimistic about China, they have become less so about the global economy as more and more rate hikes have been priced in.
If one of those narratives changes, or we see a significant shift in another driving force in the oil markets – Russia, OPEC+, etc – then we could see prices break out of this range. But they seem rather comfortable within them, mirroring the feeling of consuming countries and producers alike, it seems, both of which have been much less vocal on the price and imbalance in the markets.
Has gold correction run its course?
The FOMC minutes were another setback for gold, reaffirming the hawkish messages we’ve heard from policymakers for weeks now.
The yellow metal has once again run into some support around $1,820, which may reaffirm its position as a temporary barrier to the downside.
Of course, if the economic data between now and the next Fed meeting in a month doesn’t play ball, it may not hold for much longer. But the correction does seem to have run its course for now, which could lead to further profit-taking and a retracement higher.
Bitcoin continues to show remarkable resilience as it trades up 2% and back above $24,000.
It’s not alone in doing so, we’re seeing similar in equity markets although to a lesser extent. There’s clearly belief returning to crypto markets and some confidence that the darkest days are behind it.
If the newsflow can remain onside, then that could prove to be the case and a break of $24,500-25,500 could further fuel that belief.
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.