Stock markets are making decent gains in Europe on Wednesday and US futures are also being led higher as confidence continues to build following a torrid start to the year.
It’s hard to pinpoint exactly what has changed; whether it’s earnings that are lifting the mood or the soothing tones of central bankers desperately trying to manage expectations. Perhaps it’s simply a case of investors coming to terms with the tightening environment and feeling more comfortable with it.
Whatever the reason, investors certainly appear encouraged by the fact that the falling knife period looks to be in the rear-view mirror and we’re now seeing signs of stabilization. In recent week’s we’ve also seen periods of aggressive selling being bought into which has helped create the impression that the worst is behind us.
Of course, that could change quickly if the inflation outlook worsens, as has repeatedly been the case in recent months. And we won’t have to wait long for the next hurdle on that front, with the US CPI data being keenly anticipated tomorrow.
Before then, we’ll hear from Loretta Mester and Michelle Bowman from the Federal Reserve, and Huw Pill from the Bank of England. Both central banks have become far more hawkish in recent months but I expect we’ll see some caution in the wording as none will want to needlessly spook financial markets.
Oil eases as talks continue
Oil prices are continuing to soften on Wednesday, as traders continue to weigh up the prospect of a nuclear deal between the US and Iran that could see more than a million barrels of oil flood the market at a time when it’s very much needed. One eye will also be on the EIA inventory data after API reported a more than two million barrel drawdown on Tuesday.
WTI has slipped back below $90 but Brent is continuing to hold around there, after finding strong support over the last day or so. If US-Iran talks continue to progress, this level should come under some pressure, while a collapse of negotiations could be the catalyst that drives the price towards triple-figure territory.
Gold continues to push key resistance
Gold is relatively flat on the day but has remained well supported after registering a sixth winning day in seven. The yellow metal is once again seeing some resistance around $1,830, a break of which could open up a move towards $1,850.
Yields have softened a little over the last couple of days, especially in Europe, where policymakers are pushing back against market expectations for interest rates this year. We’re still seeing 40 basis points of hikes being priced in by the end of the year which would be quite the shift. But that may be providing gold some further support in the near term.
Bitcoin recovery looking promising
The bitcoin price is easing a little again today after running into resistance around $45,500 on Tuesday. The risk relationship has become a little disconnected over the last week or so, with bitcoin appearing to front-run some of the recovery in stock markets. Risk appetite has improved this week which has coincided with some profit-taking in bitcoin. It continues to look promising though and a break of $45,500 would be another important and bullish hurdle.
