Markets Today – Under Pressure, US Data, Oil, Gold, Bitcoin

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

Stock markets have fallen heavily in June so it seems only fitting that they’re ending the month with big losses as reality continues to bite.

There’s no getting away from recession chat and while the heads of the Fed, ECB and BoE didn’t exactly fuel that during their panel discussion on Wednesday, they didn’t do anything to dispel it either. They all know that there’s a strong likelihood of recession this year or next and investors are increasingly accepting that fate as well.

There’s been a plethora of economic data from across Europe this morning, mostly tier two and three, and it was a bit of a mixed bag. The labour market figures, for example, remain strong with the anomaly being Germany but this was heavily distorted by the integration of Ukrainian refugees into the labour market. Underlying numbers remain in good shape even if across the bloc, employment growth is expected to slow.

It’s impossible to ignore the fact that households are being squeezed and we’re seeing that appear in the data, particularly in the UK which will probably fall into recession later this year. But it is unlikely to be alone in that which is why bear-market rallies are proving to be so short-lived.

US inflation boost but spending slips

US inflation data was unusually encouraging ahead of the open. Perhaps that’s getting a little carried away but it didn’t deliver another crushing below so maybe this feeling is actually relief rather than joy. The core reading was a little better than expected at 0.3%, in line with April, while the headline also fell a little short of expectations at 0.6%.

The income and spending data were arguably less encouraging. Earnings rose 0.5% as expected, a slight acceleration from April, while spending rose only 0.2%, a big drop from 0.9% a month earlier and half the forecast. Another sign of the squeeze taking a toll on households? The US economy is among the best positioned to fend off a recession but it’s not completely immune to the cost-of-living crisis. It may be catching up.

Oil lower as OPEC+ sticks to August target

Oil prices are modestly lower on Thursday, further paring recent gains following yesterday’s reversal. As expected, OPEC+ stuck to its planned 648,000 barrel increase in August and refrained from any decision beyond then which could add an element of uncertainty to future targets, particularly given recent reports that even Saudi Arabia and UAE are running near capacity.

The global economic uncertainty doesn’t make planning ahead any easier, either. The prospect of a recession has created more two-way price action in recent weeks, preventing any unsustainable surges in the price of crude as China reopened and the OPEC+ deficit increased. ​

Gold slightly buoyed by inflation data

Gold has been trending lower over the last couple of weeks but remains in its early summer range between $1,800 and $1,870. It’s really struggled for direction over the last couple of months despite the volatility in the broader financial markets. It has been like a deer in the headlights, unable to process and respond to the wicked combination of higher inflation, faster monetary tightening and recession fears.

It received a boost from the slightly softer PCE reading from the US, a rare bit of good news when it comes to inflation data. It’s not exactly a massive win, especially when paired with weak spending but it could be worse. Yields fell a little after the data, enabling gold to get back into positive territory for a while.

Bitcoin crumbling

Bitcoin has been hanging on in there around $20,000 but its resilience may finally be crumbling under pressure, with the cryptocurrency sliding more than 5% today to trade at around $19,000. This could be really bad news for the crypto space and may even trigger much more severe declines in the coming weeks.

The forced liquidation of Three Arrows Capital may have contributed to the latest decline as traders are left to wonder what other leveraged firms will follow in its footsteps. The fear alone could deliver another hammer blow to crypto valuations before the dust settles.