By Craig Erlam
We saw a more muted session in financial markets on Thursday following a couple of days in which investors have been very encouraged by the economic data.
Inflation figures from the US and UK have been very promising, so much so that markets see almost no chance of another rate hike in this cycle from either the Federal Reserve or Bank of England and a high likelihood of a rate cut by the end of the second quarter of next year.
That’s despite one BoE policymaker, Megan Greene, pushing back against that, although she does sit at the hawkish end of the committee having recently been in the minority voting for a rate hike.
While her concerns over wages and where interest rates will land in the future are perfectly reasonable, it seems markets are more aligned with the dovish end of the MPC.
I expect many policymakers will continue to push back against markets until they can be certain that inflation has been controlled and is on a path back to 2%.
A late pivot has likely always been the strategy and I expect it remains the case. Higher-for-longer remains the mantra, but I suspect it won’t be too much longer.
Encouraging claims data
Jobless claims were a welcome addition to recent data that pointed to a slight cooling in the labour market and, perhaps, the US economy.
Of course, we’re talking about a very small step in the right direction, from the perspective of the Fed, and it will need to be backed by a lot more over the coming months, but it’s a start.
Claims have been trending higher in recent weeks, but we’ve seen numerous false dawns this year and this could simply be the latest.
Will oil prices encourage Russia and Saudi Arabia to extend cuts?
Oil prices have been trending lower again in recent days after rebounding on Tuesday, around the October lows in the case of WTI. There are concerns around demand going into next year, particularly around China, which OPEC this week sought to relieve, to no avail.
The recent trend could make it difficult for Saudi Arabia and Russia to allow their unilateral cuts to expire at the end of the year, which is something markets may be gradually pricing in.
The lack of a commitment to extend so far may reflect a desire to not, but as we’ve seen so often in the past, the producers will do whatever it takes to support the price. The question may be whether they can get others on board.
Gold eyes $2,000
Gold prices pushed higher once more after running into some resistance around $1,980 on Wednesday.
While it hasn’t yet moved above this week’s highs, momentum still looks healthy and gold bulls may have sights set on $2,000 once more.
Recent data has been very favourable for gold, it will be interesting to see whether that will be enough to propel it above this big psychological zone.
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.