By Craig Erlam
There’s been a lot of economic data to digest so far on Thursday and yet nothing has really changed as far as markets are concerned, with September kicking off on a bad footing.
We’ve rapidly transitioned from pivot-induced euphoria to recession anxiety. All because central bank policymakers have repeated messages that their colleagues delivered prior to Jackson Hole, but were then ignored. It’s all rather strange.
With the US jobs data on Friday, investors may remain cautious and risk-averse for now as the tightness of the labour market is unlikely to produce the kind of report that the Fed wants to see and that will ease the nerves.
Of course, when it comes to investors, nothing will surprise me at this point.
Recession more likely
The PMIs Thursday morning haven’t helped lift spirits, with the European surveys offering little hope that the bloc will avoid a recession later this year. And that’s before winter even starts and energy bills go through the roof.
It’s going to be a long, hard six months for Europe and it can’t rely on the ECB to provide any relief; quite the opposite, actually.
The PMIs from China don’t make for better reading, either, and that’s compounded by the latest lockdowns in Chengdu and restrictions elsewhere. Power shortages due to the droughts further dampened sentiment last month and contributed to the weaker readings.
All considered though, things aren’t likely to dramatically improve, with the Chinese economy continuing to face severe headwinds for the rest of the year and into the next.
Markets testing Saudi threats
The pessimism in the markets is filtering through to crude oil where prices fell 2% again on Thursday.
I’m not sure Saudi Arabia expected markets to test their nerve so quickly, but it seems the suggestion that a reduction next week won’t be considered has removed the production cut risk for now.
It will be interesting to see how much traders decide to test the alliance, something that may invite more verbal intervention and perhaps even a change of heart ahead of the meeting.
For now, Brent and WTI are edging ever closer to their August lows.
Gold eyes July lows
After breaking below $1,730 support earlier in the week, gold is now pushing below $1,700 and could have the July lows around $1,680 in its sights.
The yellow metal did not take Jerome Powell’s comments at Jackson Hole very well and has been on the decline since. It’s off around 3.5% from the highs of last Friday and a break of $1,700 could see it come under further pressure.
The key test is $1,680, though, and a break below could be a very bearish development.
Bitcoin put to the test
Bitcoin is desperately trying to hold on to $20,000, but its resilience is being put to the test this week.
A move below could be a massive blow after the cryptocurrency staged an impressive recovery from mid-June. Like other risk assets though, its luck has turned and the coming days could be key.
A break below $20,000 could see attention shift back towards $17,500 where it bottomed early in the summer.
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.
