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Decent rebound, more data needed to justify optimism

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By Craig Erlam  

Stock markets were modestly higher on Thursday, recovering some of Wednesday’s losses as investors seemingly struggle to determine where things stand.

There’s a desperate desire to cling on to the optimism that enabled such a strong end to the year, but unlike in that period, the data isn’t really playing ball.

The releases we’ve seen so far this month have been fine and in the main, perfectly in keeping with the expectations people had coming into 2024. But is that enough?

Pricing on interest rates was very aggressive at the end of 2023 and perhaps the data needed to keep overdelivering to keep the party going. There’s still a sense that it could again which is why there’s so much reluctance to allow markets to correct in any significant way.

But at some point, the data needs to justify such loyalty or investors may start to worry that central banks won’t be swayed.

Promising jobs and housing from US

Data from the US was a little positive, although, in the case of jobless claims, it’s hard to say at this stage how much.

Initial claims unexpectedly fell below 200,000, but arguably more promising, claims have continued to edge down which suggests the market for those laid off has improved slightly.

The housing data trend is also looking better than it has for some time which suggests, as interest rates start to fall, we should see a pickup in the market once again.

Markets kind on weaker Australian jobs

Australian jobs data was a good reminder that, as far as the economy is concerned, bad news is good news for investors.

Ultimately, it’s inflation that will determine whether central banks start cutting rates, but not every country will manage to get inflation to target while the economy performs well, as the US seems on course to do.

As a result, weaker labour market figures and general economic performance is being well received at the moment in the hope that it convinces policymakers that they have succeeded in cooling demand and will achieve their goal of price stability.

The Aussie dollar declines suggested the jobs data succeeded a little in that. ​

Oil could continue to consolidate

Oil prices continue to consolidate, with Brent still choppy between $75 and $80.

There are various upside and downside risks for the oil price, the upside currently being very prominent given events in the Middle East, but as things stand, there’s little signal of a significant shift in prices either way.

It will happen eventually, but there may be more consolidation ahead in the near term, barring a significant catalyst one way or another.

Gold nears $2,000

Gold has drifted lower over the last couple of days before running into some support around $2,000.

Traders have pared back expectations for rate cuts this year compared with the end of 2023, which has weighed on the yellow metal and could continue to do so if the data doesn’t perform.

A move below $2,000 could be a significant psychological blow, but as things stand, the trend and momentum aren’t looking particularly favourable.

Bitcoin optimism cools

Bitcoin has fallen quite a lot over the last week, but continues to trade above $42,000, a level it’s repeatedly tested in recent days.

Optimism has cooled since the ETF approvals as traders look to what’s next that will be the catalyst for a rally higher.

The halving in April is the obvious event that springs to mind, albeit with no guarantee for the price, but in the short term, the environment more broadly may have a bigger role to play.

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.