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Bouncing back despite the Fed’s warnings » PACA’s economic and political letter

By Craig Erlam, Senior Market Analyst, UK and EMEA, OANDA.

Stock markets are a little higher after falling on Tuesday due to nervousness over Nancy Pelosi’s visit to Taiwan.

This week was already shaping up to be another roller coaster ride and Pelosi’s trip has only added another layer of event risk for the markets. After Beijing’s initial response, hopefully the escalation won’t be too serious, although relations between the world’s largest economies are clearly strained and deteriorating. Market moves yesterday were compounded by comments from Fed officials, which shouldn’t have come as a surprise to investors, but showed just how far ahead they were. The idea that the shift to data dependence was an automatic precursor to a reduction in increases despite the absence of concrete signs of lowering inflation was hopeful, to say the least. we can say. The September meeting seems a long way off and a lot could change between now and then to allow for a slower tightening. This includes two sets of inflation data and two jobs reports, which will guide the Fed seven weeks from now. We should know not to be too bullish on inflation and it could come back to haunt the markets.

The data is nothing to get excited about

This morning, the services PMIs in China and Europe were not as worrying as their manufacturing counterparts on Monday, there were even some good surprises, but the overall picture remains quite bleak. The 1.2% drop in retail sales highlighted the difficulties facing the euro zone amid mounting price pressures and a troubling winter ahead. Better than expected PMIs in China, Spain, France and Germany were well received, but I’m not convinced of their sustainability. In the case of Germany, the contraction has continued and there is nothing to get excited about. The United States is the next country to open for business, and a disappointing reading could compound yesterday’s negative development.

Oil hovers around $100 after OPEC+ decision.

Oil prices are a little higher after OPEC+ agreed to increase its production targets by 100,000 barrels per day in September. This move is in line with speculation of a small increase ahead of the meeting. Of course, since many countries have fallen far short of current targets in some cases, the key factor will be the composition of the increase. If distributed evenly, the net increase will be much smaller, as we have seen so often. For this to have an impact, the shortfall must be filled.

Gold Rebounds After Fed Blow

Gold is up again this morning after suffering a setback on Tuesday. The yellow metal had tested key resistance in the $1,780-1,800 region before a Fed offensive thwarted the ‘dovish pivot’ thesis that has been circulating since the July meeting. It seems the Fed feels traders have gotten ahead and wants to make it clear that reliance on data means nothing until the data itself improves, which it hardly does. currently. This sent gold back towards $1,750 and the recovery has been rather slow since. Time will tell if the Fed’s warnings will be acted upon or if they came at an opportune time when yields, the dollar and gold were primed to take profits. Traders don’t always like to dance to the beat of the Fed and this year they benefited from not doing so.

Bitcoin rebounds again but the rebound remains unconvincing

Bitcoin hasn’t fared too badly following the Fed’s offensive or Pelosi’s trip to Taiwan, perhaps a sign that risk appetite hasn’t been hampered too much by either event. In fact, it has already surpassed yesterday’s highs and is up more than 1% on the day. A corrective move over the past few days appears to have attracted some investors. It’s hard to say if they will be rewarded, as I’m still unconvinced by the rebound of the last six weeks. And not just in the crypto markets.

Translated with www.DeepL.com/Translator (free version)

For an overview of all the economic events of the day, see our economic calendar: www.marketpulse.com/economic-events/

Craig Erlam

Senior Market Analyst, UK & EMEA OANDA

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