Stock markets are off to a cautious start to the week and Wall Street is eyeing a similar start in a few hours.
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A Cautious Start For Stock Markets
Stocks made baby steps in early trade - as we've seen repeatedly in recent weeks - but it didn't last long and indices have since moved slightly into negative territory. There's been so much anxiety about inflation and interest rates that investors are clearly apprehensive about over-committing. And that anxiety has been exacerbated by the prospect of lockdowns in Europe, following Austria's announcement on Friday.
All things considered, it's impressive that stock markets are already trying to build upward momentum again. Investors are battling on and holding their ground, but the headwinds are becoming more fierce. While they're weathering the storm, for now, I fear it isn't close to passing and they may eventually be swept aside.
Perhaps today's brief rebound is a case of relief at Germany not yet announcing another lockdown, even as it experiences a similar case surge to that of Austria. Comments from the country's Health Minister on Friday suggested it is under consideration. There may be more reluctance to pull the trigger in many countries than in the past, considering the high vaccination rates and protests across Europe this weekend.
It will be interesting to see whether the rising caseload weighed on the outlook in the region, as businesses perhaps prepared for tighter restrictions. The flash PMIs may give an idea of what businesses are expecting on Tuesday, although we may have to wait a month to get a fuller idea, as the Austria announcement appeared to catch many off-guard.
While the topic of conversation may change to lockdown threats in the early part of the week, it will shift back to inflation and interest rates as it progresses. Fed minutes on Wednesday and ECB accounts on Thursday mean the debate is never far from the headlines and that may feed into the unease we're seeing.
The US bank holiday on Thursday will also weigh on volumes and will turn into a long weekend for many of that side of the pond, which will give the feeling of a shortened week for the rest of us. Trading could be relatively subdued for the rest of the week although there is a flurry of data over the next couple of days that could perk things up.
Oil Could Correct Further As European Restrictions Loom
Oil prices are treading water at the start of the week but have been under pressure in recent sessions as major consumers have discussed a coordinated release of reserves and lockdowns have returned to Europe. While further lockdowns aren't guaranteed, case numbers in some countries are worryingly high and governments may be tempted to follow in Austria's footsteps.
This is what OPEC+ has warned of for months when forced to defend not raising production as prices have spiked. Now we're seeing prices correct and that could continue in the coming weeks if countries announce a tightening of restrictions.
While reserve releases will continue to be discussed, they may have lost some urgency after the recent correction in prices, with Brent and WTI back below $80 and on a downward trajectory. Leaders of consuming countries may want the pressure to remain so will likely continue to talk up the prospect of coordinated action.
Gold Faces A Big Test At $1,833
Gold is lower for a third straight session after enjoying a fantastic rally during the first half of the month. The yellow metal soared on higher inflation pressures as central banks, including the Fed, pushed back against a near-term policy response. That suppressed real yields and drove investors towards the comfort of inflation hedge gold.
But with the US economy performing well and the consumer in a strong position, the Fed may be better positioned to tolerate higher rates and could adopt a more hawkish position next month. With yields on shorter-term Treasuries rising, gold has lost some of its appeal and now faces a big test around $1,833 where it repeatedly saw strong resistance over the summer.
A potential pre-Thanksgiving Fed Chair announcement and the release of the November minutes on Wednesday could be the catalyst for gold one way or another.
How Deep A Correction Could Bitcoin Be Facing?
Bitcoin is slipping again today after paring losses in recent days. It failed to break back above $60,000 though which may be a bearish signal in the near term. Most people seem to be of the opinion at this point that bitcoin hasn't peaked and new highs aren't that far away, but as we've seen so often in the past, corrections can be deep and painful. We may not be seeing that now but a failure to get back above $60,000 suggests 20% may not be as bad as it's going to get.
For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/
Article By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
