Stocks are trading a little lower in Europe on Tuesday and the US is shaping up for a similar open in an hour or so.
Lower bond yields enabled stocks to bounce back strongly in the second half of last week, aided by some less hawkish Fed commentary after the meeting and a softer jobs report. But with yields now stabilizing again, equities are also running low on energy and may require another boost from the data or central bank.
But Fed officials remain extremely cautious, fearing stopping too soon and suffering another onslaught of criticism for underestimating the inflationary pressures. And we’re seeing that again, with Kaskari claiming it’s too soon to declare victory and that doing too much is preferable to too little.
A raft of policymakers will be making appearances today and it will be interesting to see whether they take a similar approach in light of bond yields now cooling again. Policymakers can’t afford to bounce between messaging depending purely on how bond yields are performing, especially when they are largely responsible for the moves, but they are clearly paying close attention to them.
RBA hikes after four-meeting hold
As they will what other central banks are doing, including the RBA which today ended a series of four rate pauses and hiked by another 25 basis points. While its decision-making is independent of the Fed’s, the challenges it faces are similar, and the fact that it’s needed to hike again after such a long time will only strengthen the Fed’s position that it needs to maintain the higher for longer mantra, and potential for more, until the last minute.
The RBA may now refrain from warning about further hikes going forward but it will certainly leave the door ajar as it can no longer be confident that inflation won’t stubbornly remain above target. As we’ve heard so much, the RBA is data-dependent, and future moves will be guided by it.
Oil slips further amid a weaker economic outlook
Oil prices declined again on Tuesday, with Brent now erasing the moves that followed the Hamas attack on Israel. Traders will remain on high alert for signs of a wider conflict emerging in the region that could disrupt supplies but it seems those fears are subsiding.
That we’re seeing data that confirms economies are struggling under the pressure of high interest rates which are not expected to decline soon may also have contributed to oil reversing its gains. It’s no surprise then that Saudi Arabia and Russia remain committed to their end-of-year cuts, it’s just a question of whether they will be extended. That they haven’t already perhaps suggests there’s some reluctance too, which may also be weighing on prices a little.
Gold struggles after repeated fails to hold above $2,000
Gold has broken lower today, appearing to enter into a correction phase after failing to significantly break above $2,000 on a number of occasions. Perhaps we’re seeing an unwind of some of the geopolitical risk in the markets or just a technical correction in the rally over the last month but the last couple of sessions haven’t been great.
It will be interesting to see how gold trades around $1,940 if it reaches that far as this roughly coincides with prior resistance, the 38.2% retracement of the previously mentioned rally, and the 200-day simple moving average.