By Craig Erlam
Equity markets started the week a little mixed amid a nasty surprise from OPEC+ at the weekend, albeit against the backdrop of easing anxiety over the banking sector.
We’re now entering the third week without new drama in the banks and while I don’t think anyone is ready to claim victory, there is an increasing sense of relief.
That said, investors are still trying to determine what the longer-term damage of the last month is and the lack of spring back in bond markets suggests that there is some and not an insignificant amount.
While that is better understood, investors will be left to analyse how the economy is performing, whether surveys indicate increased economic anxiety, inflation, and of course, interest rates.
We had a lot of manufacturing surveys out on Monday and they mostly appear to point in the same direction, lower global demand. That doesn’t bode well for the economy as we navigate high-interest rates and stubborn inflation, something certain oil producers are seemingly turning a blind eye to.
OPEC+ in no mood for lower oil prices
OPEC+ were the latest to ensure there’s no such thing as a quiet weekend, announcing a surprise cut to production of more than a million barrels per day and sending prices soaring on the open.
The decision caught traders off guard and for good reason. Aside from the uncertain nature of the outlook, which would have been reason enough to warrant holding for now, the direction from within the cartel had indicated that no changes would be forthcoming.
Clearly, OPEC+ is far more interested in price than they’ve previously claimed. And not with respect to setting a fair price, just putting a floor beneath it.
Of course, this isn’t the first pre-emptive cut that’s caused uproar and the group will point to that as evidence that it’s acting on supply and demand dynamics, rather than just price.
But it will once more raise a few eyebrows with respect to where its priorities and loyalties lie. The fact that Russia is a member of this alliance doesn’t help with that.
From a market perspective, what it does do is reinforce the floor in prices as we know the group won’t hesitate to intervene again.
Gold highs as bond yields soften
Gold is trading around 1% higher and potentially eyeing another run at $2,000 where it has recently run into a lot of resistance. A significant break above here could be a very bullish signal with the next major obstacle being the all-time high around $2,070.
The yellow metal has been buoyed by lower yields and a slightly softer dollar, with traders still seemingly of the view that the Fed may be done and forced to cut rates a few times before the year is out.
Crypto won’t to give back gains
Bitcoin is once more trading quite independently of everything else, as has often been the case over the last month, and slipping around 1% at the start of the week.
It remains close to its recent highs, though, and doesn’t appear to be in any mood to give much back. That’s despite the newsflow not particularly in its favour, unless you buy into it as a virtual safe haven.
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.
