We’re seeing a bit of a rebound across equity markets on Thursday, as volatile yet directionless summer fun continues.
There’s no denying it’s been an eventful August so far and the wild swings we’ve seen in financial markets throughout the month certainly support that. But when we look back to where we we’re a few days in and where we are now, we haven’t really gone anywhere.
We’ve neither recovered the initial sell-off at the end of July/start of August or added to those losses, despite recession fears becoming more entrenched. Rather, it seems we’re stuck in limbo as investors debate the reliability of the yield curve inversion as a recession indicator and see how policy makers respond.
The political landscape has clearly deteriorated with new tariffs being imposed by both countries, accompanied by some fiery rhetoric from Trump. Remarks this morning by the Chinese Commerce Ministry gave investors some encouragement and spurred a rebound in early European trade, where indices are now around 1% higher.
The unfortunate reality is that these comments are likely more hot air but with everything that’s happening at the moment, they do provide rays of hope.
Gold reverses course as risk appetite shifts
Gold had once again been testing $1,550 when the comments broke, prompting a sudden risk reversal. It’s now pulled back from those highs to trade below $1,540 but more importantly, little has changed. It’s still trading near the upper end of the historically significant $1,520-1,560 range and struggling to gather fresh momentum.
This is typically a sign of weakness in the rally and while this morning’s news may have been a well-timed coincidence, traders seemed all too happy to pull out. The result is that momentum is still lacking and it may now be about to make a new high. These things can change rapidly but we may be finally seeing some profit taking in the yellow metal.
Are upside pressures building in oil?
What’s positive for risk appetite is good for oil, which has reversed earlier losses and is up on the day. The recession warnings have been ringing for weeks now and oil has been kept under pressure as a result. Rally’s have been capped around $57 in WTI but what’s interesting it that higher lows are forming which may suggest sentiment is improving.
That seems counter-intuitive when we’re talking about recession prospects but upside pressures look to be building. This weeks inventory data from API and EIA are in no small part aiding the latest gains. Whether they’ll be enough to drive a break above $61-62 in Brent and $57 in WTI we’ll have to wait and see, but rally’s will remain vulnerable to recession and risk sell-offs.
