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ECB probably done hiking as recession lies ahead

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By Craig Erlam  

It was another mixed session on Tuesday with investors potentially eyeing important events later in the week.

The PMIs across Europe earlier in the day didn’t get things off to a great start and further backed the view that the region is heading for a recession, if it isn’t already in one.

That makes the job of the ECB on Thursday that much easier as there shouldn’t be much support to keep tightening when the bloc is already cracking under the pressure. Still, the higher-for-longer mantra is likely to remain to ward off speculation of rate cuts early in 2024.

The UK PMIs weren’t too far from what was expected and again point to an economy that is feeling the strain and at risk of a recession.

The labour market figures showed unemployment fell to 4.2%, although those will be taken with a pinch of salt given the new approach.

But combined with other indicators, they still point to a further easing in labour market pressure over the coming months which should weigh on wage growth and mean the Bank of England can continue to leave rates where they are for now.

Oil slides amid weaker surveys

Oil prices fell by more than 2% over the course of the day, likely aided by a few factors, most notably weak economic figures from Europe and the ongoing push to de-escalate the situation in Gaza and Israel.

The risk premium we’ve seen in oil prices, because of the risk of a wider conflict in recent weeks, has seemingly started to fall as a result.

There may also be an element of profit-taking, even technical selling on the back of what we’ve seen so far this week, which may be contributing to the declines after such a strong rally earlier in the month.

Strong rebound in gold

Gold staged a recovery towards the end of the day in Europe after falling back toward $1,950 earlier in the session.

This is where it ran into resistance on a couple of occasions in September, so there may have been a technical contribution to the rebound we’ve seen.

The yellow metal was trading a little higher on the day and following such a rebound, traders may once again be wondering whether a run toward $2,000 is on the cards.

Strong surge for bitcoin

Bitcoin stormed higher again on Tuesday continuing its blockbuster start to the week on the back of more ETF chat.

There’s a lot of excitement about the prospect of a bitcoin spot ETF, as is evident by such a surge on speculation of something that was already expected to eventually get over the line.

Either way, a break of $30,000 was big and since then a number of potential technical barriers have been quickly overcome.

 

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.