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Anxiety subsides, RBA pauses rate hikes

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By Craig Erlam  

Stock markets were moving cautiously higher again on Tuesday as anxiety continues to subside in the aftermath of last month’s mini-banking crisis.

RBA pauses

The RBA paused its tightening cycle on Tuesday, citing various concerns including a substantial slowdown in household spending, the lag from recent rate hikes, and the stress in US and European banks.

While inflation remains far too high and further hikes may be warranted – no longer “will” – it would appear the Australian central bank has now reached the point at which additional tightening will be uncomfortable and risk tipping the economy into recession, or worse, deepening it.

They aren’t the only central bank to find themselves at that juncture.

In fact, most others are either there or very close to that point, and recent strain in the banking sector has highlighted the downside risks of further significant tightening. We may see most now proceeding with caution and only tighten if absolutely necessary.

The time for pause and consideration may have arrived.

Oil continues higher

Oil prices were higher again on Tuesday, adding to their substantial gains on Monday following the shock production cut from OPEC+.

The decision to reduce output by 1 mln bpd despite no prior warning – quite the opposite in fact – and without a clear view of the demand outlook in light of recent events, highlights just how driven by price and speculation the group is, despite its previous insistence otherwise.

There may have been other factors at play as well, and 2 mln barrel cut late last year didn’t lead to the price surge and market imbalance that many expected, but that doesn’t explain why the group arguably misled markets.

Perhaps the war on short-sellers is real and the alliance is determined to discourage it in the future.

For now, crude is trading back around the highs from early December to the mini bank crisis sell-off and it doesn’t look like giving up those gains too easily. A move above the $81-83 region in WTI and $86-88 in Brent, could be very bullish, potentially bringing late summer highs into view.

Gold still has eyes set on record highs

Gold was trading marginally lower on the day, very close to its recent highs, a sign that traders are not budging from their view that US interest rates are at or near their peak and expect them to fall this year.

The yellow metal continues to trade a little shy of $2,000, a major psychological barrier that has held firm on a number of occasions in recent weeks.

A move above this would bring record highs around $2,070 into sharp focus, but that may depend on future interest rate expectations being pared back further and some more risk aversion in the markets.

Bitcoin remains choppy

We continuing to see choppy trading around $28,000 in bitcoin, a level reached in the aftermath of the mini-banking crisis and held onto ever since.

Where it goes from here is hard to say as no one would be surprised to see another surge, but logic suggests a pullback would make more sense, and the technicals may back that up.

 

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.