By Craig Erlam
It’s been a jittery start to the week, with the continued rise in US yields making investors nervous about what challenges lie ahead for the economy.
We’ve heard a lot about the resilience of the US economy and the evidence has been there for all to see.
But that resilience has long been paired with a belief that rates won’t stay at peak, a view that has gradually faded as rate cuts have been pushed back further and further into the future.
Ultimately, there’s only so much the economy can withstand and recent moves in yields suggest bond investors are coming around to the Fed’s way of thinking.
Whether that will remain the case, I’m less convinced, but as things stand there’s a growing view that the economy will be pushed over the edge sooner or later, at which point the discussion around rate cuts can take hold.
Oil eases
Oil prices eased on Monday, aided by minor progress in Gaza and higher yields creating fresh economic uncertainty. They’re still very high, but any prospect of de-escalation in Gaza and Israel will help to cool the moves we’ve seen in recent weeks.
It’s also been light on economic releases and Tuesday’s PMIs could offer fresh insight into the state of play and whether firms are becoming more pessimistic about the situation. The surveys have been quite dire in Europe, while those in the US have also been deteriorating.
Gold pares recent gains
Gold has eased off its recent highs after coming within a whisker of $2,000 at the end of last week.
The yellow metal has probably been driven lower by a slight de-escalation in Gaza and Israel, or arguably the absence of a major escalation over the weekend which traders were nervous about on Friday.
It continues to trade at elevated levels though, which is understandable.
We started to see signs of divergence last week which indicates the trend was weakening even as prices hit higher levels. While not a negative signal, it is a red flag and that momentum that previously existed has not been restored this week, which could lead to some profit-taking.
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.
