Markets Today – RBNZ, BoC, UK Inflation, US Inflation, Oil, Gold, Bitcoin

Tightening Continues Amid Higher Inflation

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Another mixed session on Wednesday, with Europe edging lower once more and US posting small gains early in the day.

There is so much focus on the inflation outlook right now and what policymakers are doing to get to grips with it. Two central banks have raised interest rates by 50 basis points today and the Fed is expected to follow that with a similar move in a couple of weeks’ time.

The moves from the RBNZ and BoC were not surprising, although the consensus for the former was 25 basis points prior to the meeting with the potential for an upside surprise. But they do support the view that more needs to be done now from central banks to avert the need for more later, with most viewed to already be late to the party.

US data on Tuesday allayed some inflation fears in the markets, with CPI being almost in line with expectations while the core reading was actually a little lower. It was still far too high but ended a period of above consensus readings which may be a sign of inflation peaking.

The same cannot be said in the UK, where inflation was once more well above expectations at 7%. The core number was a little lower at 5.7% but as with the headline that was well above the consensus forecast. And with the energy price cap only rising in April – by 54% – the peak is yet to come, with forecasts putting that around 8.5% this month.

While the BoE was among the first to start its tightening cycle, raising at three consecutive meetings since December, there’s no less pressure on them to continue their tightening cycle with rates seen rising much further over the course of the year. The apparent cooling in the hawkish language after the last meeting may be short-lived if recent economic reports are anything to go by.

Oil pushing higher as OEPC continues to disappoint

Oil prices are continuing to push higher after spiking on Tuesday. The slight easing of restrictions in China and pushback from OPEC to EU requests for higher output triggered a sharp rally yesterday just as the price was flirting with double digits. Chinese restrictions have weighed on demand forecasts and eased the pressure on prices recently but that was always likely to be temporary.

Longer-term, the market remains very tight and with plenty of upside risks in the price. Russian output remains a source of uncertainty given the impact of the war in Ukraine on its exports. While the reluctance of OPEC+ to significantly raise output – well, those within the group that can – isn’t helping ease the pressures in the market. Even OPEC hitting current targets would help.

Gold eyeing $2,000 on day six of the rally

Inflation concerns appear to be driving the latest move in gold which is rallying for a sixth consecutive day. After breaking through the upper end of its range in recent days, the yellow metal appears to have its sights on $2,000 which would be a major psychological breakout at a time when central banks are expected to hike as aggressively as they are.

There isn’t an abundance of risk aversion in the markets at the moment, although investors will no doubt continue to be cautious in such a highly uncertain environment. There appears to be plenty of momentum in the rally at the moment which could make the test of $1,980 resistance interesting.

Bitcoin seeing some reprieve after a rough week

Bitcoin is enjoying a bit of a recovery alongside other risk assets today. It’s suffered so far this week and spent a bit of time below $40,000 as a result which could have been the catalyst for further pain. But it’s showing a little resilience today, up around 3%, and now the test becomes $42,000 which has previously been a level of interest.