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Major boost for ECB, but still a long way to go

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By Craig Erlam  

European stock markets were performing well at the end of the week after spending much of the past days in the red on the back of fresh interest rate concerns.

A determination to drive home the message that interest rates will stay higher for longer appears to have finally wobbled investors. Friday’s HICP inflation figures from the eurozone will have come as a big relief against that backdrop which may explain why we’re ending the week on a high.

A beat at both the headline and core levels puts the eurozone in a promising position, especially with both expected to fall much more over the next couple of months, at which point investors may well start demanding more rate cut debate at the ECB.

Not that I think policymakers will even entertain that idea any time soon.

Trend is promising for US inflation

Talking of positive surprises, the US PCE inflation numbers weren’t bad either.

The monthly reading fell unexpectedly to 0.4%, while at the core level, it was also lower at 0.1%. The annual readings may have been in line, but that’s extremely promising as far as recent trends are concerned.

With data over the coming weeks likely to be disrupted, this feels like it falls in the pause category for the Fed at the next meeting.

Is oil rally hitting a ceiling?

The oil price rally has continued this week, although there are some signs that it’s starting to run on fumes as we go into the weekend.

The fundamentals remain very supportive of the price, with the market in deficit thanks to the efforts of OPEC+ in restricting supply.

But with investors now questioning the resilience of the global economy going into next year against the backdrop of higher interest rates for longer, that bullish bias in oil markets may become more balanced.

At these levels, OPEC+, in particular Saudi Arabia and Russia with their additional voluntary cuts, may reassess whether the full package of restrictions is still necessary.

Gold crushed by hawkish central bankers

It seems central bank policymakers have done too good a job of convincing investors that interest rates will remain higher for longer.

Yields have been rising this week, crushing sentiment and taking gold down with it. The yellow metal slipped below $1,900 on Wednesday after falling since the start of the week and the outlook doesn’t look particularly promising in the short-term.

While there’s every chance policymakers have gone too far and the data may outperform their expectations, allowing for a recovery in the price of gold, a shutdown could complicate things. That arguably makes Fed-speak all the more influential and may encourage a little more balance in the commentary.

For now, gold has broken big support levels and with momentum, which doesn’t bode well. It’s seen support around $1,860, which has been a notable level in the past and if it can manage a rebound, $1,900 could be key.

Bitcoin remains choppy

A US government shutdown will be disruptive in many ways and it seems crypto is not immune to that, with the spot bitcoin ETF application deadline reportedly being pushed back as a result of the inability of Congress to reach a deal.

It’s hardly the biggest casualty of the shutdown, but may frustrate the community after such a long drawn-out battle.

It’s not affecting the price though, with bitcoin ending the week on a high back around $27,000. Broadly speaking, this is within the late summer choppy range.

 

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.