It’s been a remarkable week so far in financial markets and it seems there’s still plenty more to come.
It’s been a tough month for investors, forced to watch on as central bank tightening expectations hammered risk appetite and, in turn, stock markets. This has been largely accepted as a consequence of inflation being allowed to run hot for too long but this week, the fightback has started.
Monday’s turnaround was incredible. The latest blow came from the geopolitical arena and at one stage, it looked like investors were out for the count but they picked themselves up and somehow found the upper hand. On Tuesday, it was Microsoft that landed a late blow but once more, stock markets quickly recovered and went into the Fed decision on the front foot.
By the time Powell arrived on the scene and delivered what could have been the knockout punch, investors were full of belief and today we’re seeing the benefit of the fightback earlier in the week. Rather than rolling over, defeated at the thought of five Fed hikes next year, investors are seizing on the lower valuations and the US has kicked off trading on Thursday on a strong note.
Whether that can be sustained over the coming weeks, we’ll see, but this week will give investors more confidence. Naturally, it’s helped by data showing the economy grew by 6.9% in the last quarter, capping off a strong year of growth, which along with a tight labour market may offer encouragement that higher inflation and interest rates won’t derail the recovery in 2022.
Oil has sight set on $100
Oil prices are making decent gains again on Thursday, with Brent once more above $90 which is naturally leading to talk of $100 oil and when it will happen. The environment continues to be very bullish for oil prices, given supply issues within OPEC+, strong demand, and now, geopolitical risk premiums. It’s hard to see what’s going to stand in the way of triple-digit oil, especially if we see no diplomatic breakthrough between Russia and the West any time soon. And based on Russia’s response to their proposals, it doesn’t seem a breakthrough is on the horizon.
Gold pummelled by hawkish Fed
Stock markets certainly took the Fed decision better than gold did, with the yellow metal falling 1.6% on Wednesday and now another 0.5% today. It seems that weeks of traders embracing gold like an old friend that offers inflation protection have quickly unwound and it’s been quickly cast aside. While it has found some support around $1,800 today and may remain supported to some extent out of fear that even five hikes won’t do it, it’s certainly fallen out of favour and may have peaked for now.
Bitcoin making a comeback?
Bitcoin is certainly enjoying the relief that this week has brought. The cryptocurrency was getting into dangerous territory but has recovered well as sentiment has improved and now looks in a much more comfortable position. Of course, volatility is still here and there’s plenty of underlying anxiety in the market that could see bitcoin tumble again but suddenly, $40,000 is looking more vulnerable than $30,000. A move above here could be the catalyst that the crypto crowd has been craving.