How sustainable is markets’ rally? PMI surprise

1 min read

By Craig Erlam  

Equity markets in Europe and the US continued to edge higher on Tuesday despite many questioning whether investors are getting too carried away.

The rally appears to be based on the view that central banks from the Federal Reserve to the ECB and BoE will start cutting interest rates in March and then do so another three times over the rest of 2024. That’s quite the difference from what policymakers have insisted on for many months, but there has undoubtedly been a change in tone recently.

Whether that’s been enough to warrant such optimism is what many are now questioning and what policymakers will probably address at the December meeting.

Regardless of whether they push back against the scale of cuts next year, it’s clear that there’ll be a shift from central banks at their meetings this month, based on recent commentary.

Whether that will be enough to constitute the pivot that’s been so talked about this year may well determine whether markets continue to price in a March cut as a U-turn of that magnitude will have to be clear from the meeting. The Fed in September indicated it expected to raise rates again, after all.

Services PMIs revised higher

There were a lot of upward revisions to the PMI surveys from Europe and the US on Tuesday and in the all-important services sector.

While the revisions don’t really change the outlook in any considerable way – euro area still facing a mild recession, UK flat growth, US resilient – it is encouraging that a soft landing is still attainable.

Oil prices bounce off lows

Oil prices are recovering a little from their recent lows, but Brent remains below $80 per barrel and under pressure.

The OPEC+ deal did little to support prices and given the three days of declines that followed, traders are unimpressed. The question now is whether we’ll see new five-month lows amid dampened growth expectations next year.

The PMIs offered some hope and may have contributed to the rebound.

A major test for gold at $2,000

We continue to see profit-taking in gold after it started the week in remarkable fashion, smashing through record highs and bursting above $2,100.

It didn’t last though and already it’s trading back close to $2,000, which will be a very interesting test of support after it took so long to significantly break and hold above.


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.