By Craig Erlam
We saw very mixed trade on Thursday, with the Nasdaq making strong gains of more than 1.5%, the Dow and S&P treading water, and Europe mostly in the red.
Once more there’s a heavy focus on central banks and whether investors have been too optimistic about when and where the peak in interest rates will come, and by extension how soon after they’ll fall.
UK inflation data on Wednesday was disappointing, despite finally falling back into single digits.
It remains stickier than hoped and core inflation in particular was a nasty shock, forcing investors to significantly revise up rate expectations over the coming months.
Fed pause on hold?
The Fed minutes were largely as expected, with a clear divide between those who are concerned about the tightening lag and tighter credit conditions, and those who feel more hikes are needed due to insufficient progress on inflation.
Thursday’s data did little to put their minds at ease, with growth in the first quarter a little higher than expected and jobless claims falling well short of expectations on top of downward revisions to the previous week.
Markets are now pricing in another hike over the next couple of meetings, even if the Fed holds in June.
Russia cools talk over OPEC+ cut
Oil prices were sliding again on Thursday after Russian Deputy Prime Minister, Alexander Novak, appeared to cool expectations of an imminent output cut from OPEC+ ahead of the meeting in a week.
Suspicions of a second consecutive cut came as prices slipped, and remained, below $80 a barrel – the point at which the group announced a surprise cut previously – and Saudi Energy Minister, Prince Abdulaziz bin Salman, warned short speculators to “watch out”.
It would be more damaging to make those threats and not follow through, and perhaps Novak is playing a role in the elaborate scheme to punish short-sellers, but the comments suggest there isn’t widespread support for another cut so soon after the last.
That wouldn’t prevent Saudi Arabia from unilaterally enacting a cut, but it would make it less effective.
Gold slips further
A stronger dollar and higher US yields pushed gold into the red once more, driving it back below technical support at $1,960 and signaling a deeper correction is on the cards.
Another rate hike over the next couple of Fed meetings is now deemed more likely, which has driven the latest strength in the dollar and gold is paying the price.
The yellow metal could now be facing further losses following the break of that support level, with technical support coming around $1,940 and $1,900 being the next psychological barrier.
US inflation, income, and spending data on Friday could be the next big catalyst for gold, in the absence of any shocking Fed commentary.
Mild correction continues for bitcoin
Bitcoin continued to drift lower on Thursday although it has rebounded around $26,000, near the lows from a couple of weeks ago.
This represents the next level of technical support below, with $25,000 being the big test below.
The crypto’s price remains almost $10,000 above where it started the year, so even taking the more than 15% correction into account since mid-April, it’s still more than 50% up this year.
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.