By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
Stock markets are off to a decent start this week with Europe posting almost 2% gains and the US not far behind.
Fluctuations in the markets are so frequent and large that I struggle to get particularly excited about days like today. On the face of it, these are very decent gains. But what exactly has changed? There’s far more to be concerned about than optimistic at this point and that’s going to be a constant challenge to any of these bear market rallies.
The next couple of weeks could be huge for market sentiment going into the summer, from the ECB rate decision on Thursday to US inflation on Friday and the Fed meeting next week. A lot has been priced into the markets when it comes to interest rates but it may still not be enough. And there’s perhaps a bit of denial about the economic prospects, especially if inflation falls at a much slower rate.
GBP higher ahead of no-confidence vote
The pound is one of the better-performing currencies in FX markets at the start of the week which may come as a surprise to some given the no-confidence vote on Prime Minister Boris Johnson that was confirmed earlier in the day. Political instability isn’t something that is typically positive for a country and its currency but a look at the odds ahead of the vote probably tells you everything you need to know.
Interestingly, the biggest winner of this evening’s no-confidence vote could be Boris, himself. The Prime Minister will no doubt consider a vote in his favour as drawing a line under the whole partygate scandal – even if plenty of others disagree – and he’ll be free of another challenge for at least 12 months. Who knows, he may well be pleased with the vote being triggered, even feel emboldened if he wins, as expected.
Oil pares gains as China continues reopening
Oil prices are slipping a little on Monday after stalling just above $120 a barrel. Clearly, traders were not overly impressed by the OPEC+ output hike last week once the details of the deal were released. Allowing countries, the bulk of which are running at capacity, to increase output faster will only increase the shortfall, rather than solve the issue of tightness in the market. But then, was it ever intended to do anything more? Or just a symbolic gesture.
The ongoing reopening in China will continue to support demand and be a bullish factor for crude prices. Of course, the flip side of that is such commitment to Covid-zero means restrictions could be reimposed at any time.
Gold treading water
Gold is trading a little lower today but broadly speaking is continuing to tread water around $1,850. There hasn’t really been much movement on that front over the last couple of weeks, despite there still being decent intraday volatility. Higher yields pose a risk to the gold recovery trade and a higher inflation reading on Friday could mark the end of it.
Bitcoin remains in consolidation
Bitcoin is back above $30,000 and up around 5% on the day. And yet, I don’t think we’re any the wiser on the path of travel for the cryptocurrency in the days and weeks ahead. It’s been in consolidation for many weeks now in a pattern that looks more bearish than bullish on the face of it but as we’ve seen before, once the recovery fully takes hold, the rally can be as explosive as it was unexpected. One thing that’s against it is the near-term prospects for risk assets more broadly and like with those, it could be a big ten days.
