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Traders hesitant, IMF cautiously optimistic, more Saudi warnings

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By Craig Erlam  

Equity markets were broadly lower on Tuesday as traders monitor debt ceiling talks in Washington, take note of new IMF forecasts, and hear fresh warnings from the Saudi Energy Minister.

Once again, it was a relatively lively day as far as headlines are concerned and yet there’s still a feeling of hesitance in the markets. We’re still waiting to see a resolution on the debt ceiling, which will undoubtedly come, after more promising talks between President Biden and House Speaker McCarthy.

At the same time, we may be at a turning point on inflation and interest rates, but we’re still waiting for data that could confirm or at least put us on a more promising path. The next couple of months will be crucial.

IMF optimistic on UK economy

The UK will avoid a recession this year, according to the IMF, which revised its growth forecast from -0.3% to +0.4% on the basis of stronger household spending, higher wages and reduced post-Brexit uncertainty.

The first two will also likely force the Bank of England to keep rates higher for longer, as the IMF warned, so the challenges aren’t going away any time soon. This is a welcome start given the far more pessimistic forecasts following the drama of last year.

Bailey’s upcoming comments

BoE Governor Andrew Bailey was joined by colleagues to testify in front of the Treasury Select Committee once more on Tuesday, this time on the monetary policy report.

Coming so soon after the grilling on quantitative tightening, you’d be forgiven for confusing the two as the topics of debate were largely the same, with the MPC forced to defend its decision-making over the last couple of years and its credibility, by extension, now.

Ultimately, it’s not what Governor Bailey or his colleagues said that will be the key takeaway this week, but rather what he says on Wednesday in his two appearances following the release of the April CPI report.

This is expected to be the first sharp fall coming a year after the surge in energy prices, meaning the data going forward will have favourable base effects, albeit not at the core level which will fall at a much slower pace.

Oil higher after Saudi warnings

Oil prices nudged higher on Tuesday following another warning from Saudi Energy Minister Prince Abdulaziz bin Salman that short-sellers will be “ouching” as they did in April.

“Watch out” was the message ahead of the next OPEC+ meeting early next month, in what may be a sign that the group is considering cutting output once more amid a more bleak global economic outlook.

Of course following the bank failures in the US.

Gold still seeing support

Gold was relatively flat on the day, but recent momentum has been more bearish, with $1,960 representing a big test to the downside. We’ve seen it run into support around here this past week and it has been a notable level previously as well, including late March and early April, as well as early February.

A break below could be a very bearish development, with $1,940 and then $1,900 being the standout potential support zones.

No Bitcoin momentum in either direction

Bitcoin remains in consolidation, pushing a little higher on Tuesday, but not really making any progress in either direction.

The recent trend is very much against it and the break of $27,000 a couple of weeks ago suggests it may have entered into corrective territory but as yet, it’s been very resilient.

If we do see a move lower, the 12 May lows offer the first support test, followed by $25,000.

 

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.