Markets are trading higher ahead of the open on Wall Street later as attention shifts to the Fed in the second half of the week.
Recession nerves look to have settled a little following last week’s panic, which has brought some relief to markets. Now that everyone is an expert in inverted yield curves and the apocalyptic foresight they contain, there seems to be an odd acceptance of where we’re heading (or is it denial?)
The Fed will be all too aware of the events of the last week, not just because of its historic significance, but because investors are now relying on them even more heavily to save the day. Markets are effectively pricing in a rate cut every remaining meeting this year. Are investors setting themselves up for disappointment or leaving the Fed with little choice but to follow?
Clearly Powell can’t afford to get it wrong on Friday because any signal that markets are way off the mark will likely cause further mayhem, not to mention a backlash from the White House. The Fed minutes today will naturally be of interest but given the events of the last few weeks, I wonder just how outdated they’ll be at this point, unless they’re encouraging for the many rate cutting enthusiasts out there, of course.
Gold steady ahead of Fed minutes
Gold is holding steady after losing some momentum over the last couple of weeks. The yellow metal has enjoyed some stunning gains over the last few months as central banks around the world have gone bank into easing mode, in some cases with multiple rate cuts. While long term, the environment remains favourable, it is showing signs of a possible correction.
The Fed could have a big role to play in the timing and scale of the correction. The minutes this evening will be closely monitored but given how much has happened since the meeting itself, Friday is far and away the more important. Investors want hints that more cuts are coming but I don’t see that happening too explicitly today. If that lifts the dollar, it could drag on gold, at which point $1,480 will be key.
Oil rally built on sand
Oil is enjoying the rebound in risk appetite that we’re seeing this week. The fact that the 10-year is yielding more than the 2-year again may be contributing to that but I fear any optimism may soon be dashed, given the fragile state of markets right now.
Given that the economic outlook is the primary driver of oil markets right now, that means its rallies may be built on sand and could face plenty of resistance. The first test comes around $57-57.50, with that having been a notable area in the past and the most recent peak.
