By Craig Erlam
Stock markets are ending the week on a positive note although broadly speaking, it doesn’t seem we’ve progressed in either direction over recent weeks.
Trading has become very choppy as the economic data has turned more problematic and interest rate expectations have flipped. Investors are now waiting for evidence that the January figures were the blip many expected, driven by unseasonably warm weather. And next Friday’s NFP jobs report will be the first such tier-one release.
We may see more fluctuations in the markets alongside some interesting releases in the interim, not to mention the two appearances by Fed Chair Jerome Powell in Congress during the week.
I can’t imagine he will pivot too dramatically in either direction as the data has largely evolved just as the Fed feared. But you never know, any shift toward the hawkish end of the spectrum may resonate more than normal given recent developments.
More signs of optimism for China
The services PMI data released Friday were mostly revised numbers from Europe, but the Chinese Caixin release once again surprised in a positive way, which may be part of what lifted sentiment late in the week.
The transition is clearly going well and this is the latest survey that backs up that belief.
There’s still a long way to go and the scale of the recovery may depend on how much economic and monetary support is on offer over the coming months, or whether policymakers even deem it less necessary on the back of recent indicators.
Oil back in middle of the range
A decent week for oil prices comes to an end slightly in the red, perhaps a sign of some profit-taking.
Prices have fluctuated in a range for months now and the current price sits more-or-less in the middle of that range. While traders are becoming more optimistic about the Chinese recovery, the risks to the global economy may be increasing as interest rate expectations have risen.
The range does appear to be gradually tightening but remains quite large and there appears little appetite for a break at present. Perhaps the US data over the next couple of weeks will change that.
Gold paring losses
Gold is bringing an end to a run of four successive weekly declines, rising around 2% over the last five days after running into significant support around $1,800.
This followed a near-8% decline from the highs at the start of February so could simply be a case of profit-taking ahead of a big week of US data and Fed speak.
The $1,780-1,800 support below remains crucial and should it break over the next couple of weeks, it may well signal a much more hawkish shift in US monetary policy.
Fragile confidence hit by Silvergate troubles
Bitcoin is falling heavily amid a wider crypto sell-off, driven by the plunge in Silvergate capital and the risk of further negative ripple effects in the industry.
Cryptos have performed extremely well this year as the FTX fallout had been much smaller than feared and risk appetite improved.
But this story is a reminder that there could still be more to come and it has undermined confidence in the space.
While off around 5% on Friday, bitcoin held at $22,000 and still finds itself in a very healthy position. But it could now be a very volatile few days for the industry.
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.