The rally in stock markets has stalled again at the start of the trading week, as last week’s jobs report continues to worry investors relying on rate cuts to sustain the rally.
Interestingly, expectations for rate cuts remain bullish, even if the odds of a 50 basis point cut this month have been dramatically pared back. We’ll have plenty of opportunity to see whether they’re justified this week, as Fed Chair Powell makes numerous appearances – along with his colleagues – and we get the minutes from the June meeting.
I’m not convinced that investors will get the message they’re after this week, with Powell in the past having been very conservative in his interest rate rhetoric. The central bank has left the door open to cuts without committing to anything and I expect to get more of the same.
A cut in July will be difficult to dodge given current market pricing but Powell may use the opportunity to manage expectations beyond the meeting. How successful he’ll be is another thing as investors don’t appear to want to hear it and may instead continue to apply the pressure going into the September meeting.
Bitcoin extends gains as FOMO trade resumes
Bitcoin is continuing to make strides higher on Tuesday, building on the momentum the rally gathered over the weekend at at the start of the week. As ever, we’re seeing numerous explanations for the latest gains in the cryptocurrency space but there looks to be very little of actual substance to them.
Rather, this is just another example of a FOMO rally. We saw a correction in bitcoin but the good feeling remains following the launch of Facebook’s Libra coin and as we’ve seen before, if people think it can continue to rise – justified or not – it will do so. Irrationality is nothing new in the space and the days of very volatile trading is well and truly back.
Gold pares gains on dollar rebound
The dollar is continuing to enjoy a post-jobs report bounce today, up around 0.2%, as Fed interest rate cuts continue to dominate investors’ mindsets. With global economic prospects increasingly in doubt as we head into another important earnings season, the Fed is quickly becoming the only game in town as far as markets are concerned.
The belief that numerous cuts are coming has been very beneficial for gold prices, although this rally has since stalled just shy of $1,450. A break below $1,380 may signal more pain to come for the yellow metal, which would hardly be disastrous given that it was trading below $1,300 in late May. The rally that followed was very significant, rising almost 13% over the next few weeks.
Inventory data eyed for oil
Oil prices have stabilized in recent days, with the aftermath of the G20 and OPEC meeting now priced in. It may be spurred back to life again though with the release of more inventory data as API releases its latest report. We’ve seen some big drawdowns in recent weeks which has helped to support prices but with them now being elevated again, a reverse of this trend could encourage some profit taking.
