By Craig Erlam
We’re seeing some cautious trading ahead of the jobs report on Friday, with Thursday’s jobless claims data offering signs of cracks appearing in the labour market.
That primarily came from revisions to previous figures that show a clear trend higher in claims, a trend that is likely to worsen as mass layoff announcements find their way into the data.
The next few months are likely to paint a very different picture of the labour market in the US and that could even be exacerbated by recent turbulence in the banking system.
Soon enough, the Fed will likely have an abundance of evidence that rate hikes have taken the heat out of the economy, perhaps too well. At which point the rate cuts later in the year that have been priced into markets may look increasingly likely and necessary.
Oil consolidates near winter highs
The surprise OPEC+ output cut continues to dominate price action in oil markets.
The reduction of 1 mln bpd was substantial but pre-emptive which has left traders questioning whether this was just a price issue or a belief that the global economy is heading for a difficult period.
Crude prices have held onto the initial gains and have been in consolidation since having failed to break beyond the highs of the range they traded in from early December to mid-March.
There have been some bullish calls on oil prices, but it’s worth remembering that there’s a reason oil prices were struggling to fully recover the losses in the aftermath of the banking turmoil.
Tighter credit conditions mean a slower economy, even recession, and lower demand. The extent of that at this point isn’t clear though and only when it is, can we properly judge what the price impact of the cuts is.
Record high ambitions for gold bulls
The outlook for gold is closely tied to that of US yields which have fallen considerably in the aftermath of the banking turmoil and are falling once more as recession fears resurface. That’s helped propel gold above $2,000, a level above which it has only ever spent a handful of days.
The yellow metal may have record-high ambitions having overcome that psychological resistance, but that may depend on yields slipping further.
Whether that comes from recession fears, lower inflation, increasing labour market slack, or a combination of these, investors are becoming increasingly confident that the Fed is done and will be forced to reverse course a few times later in the year.
Bitcoin consolidation continues
Bitcoin has been consolidating for a few weeks after surging amid the banking mini-crisis.
That it’s managed to hold those gains for this long is encouraging, even if the trigger for the initial rally isn’t particularly clear and certain explanations hopeful to put it lightly. Still, it continues to trade not far from $30,000 and a break above would be a big psychological boost.
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.