A quiet start to the week
Equity markets in Europe are a little flat at the start of the week and US futures are eyeing a similar open on Wall Street.
The action has been saved for the commodities corner of the markets in early trade, with gold and silver seeing a meltdown early in Asia before recouping the bulk of the losses in the following hours as bargain hunters seized on the opportunity to get the week off to a good start.
Meanwhile, oil prices have tumbled again as the spread of delta and restrictions that come with it, particularly in China, is causing real concern. We’re seeing surges in a variety of countries which will likely weigh on the recovery in the coming months, just as it was starting to gather pace.
Yet equity markets are very stable, with focus here remaining on the events of the last couple of weeks. The US jobs report on Friday has solidified expectations for a taper announcement this year, most likely September if the August report is another knockout, so now it’s all about gathering clues as to when it will start and at what pace.
The Jackson Hole event later this month is the one we’ve all got circled in the calendar, with numerous Fed speakers appearing, including Chairman Jerome Powell. This is when we could get the strongest hints to date on the timing and pace. Before that, every data point will be scrutinized, starting with the CPI inflation releases on Wednesday.
Today we’ll hear from Fed voters Raphael Bostic and Thomas Barkin. Commentary from policy makers is getting increasing amounts of attention and I expect that to be the case on a quiet day like today.
Barkin has previously appeared cautious on the labour market with regards to tapering, so his views on Friday’s data will naturally be very interesting given his position as a centrist on the committee. Bostic has previously suggested it’s “getting close to a time” when tapering will be appropriate so we could see him push more in that direction today.
Momentum on bitcoins side
Bitcoin has found its groove once more over the last week, rallying strongly since last Wednesday after it saw plenty of support around $37,500 – the 38.2% retracement of the July lows to highs. Now very much back into bullish territory, the question is how far it can go this time around.
In the near-term, getting back above $50,000 will be the next test, although it could see some resistance around $47,000 – 50% retracement of April highs to June lows. Another interesting level in the March to May period was $51,000 and this time around it’s also the 61.8% retracement of the earlier move. It’s worth saying though that these may only be temporary stumbling blocks as cryptos very much appear to have momentum on their side once more.
Delta weighing heavily on oil
Oil prices are under considerable pressure once again today, with Covid concerns once again being front and centre.
Rising Chinese delta cases and restrictions has cast doubt over the economy in the short-term, with the world’s largest crude importer keen to get to grips early with any outbreak, just as it has done in the past.
With various countries seeing surging case numbers of the delta variant, it’s difficult to gauge the economic impact globally, especially given different successes with the vaccine rollout and different attitudes towards restrictions.
The UK, for example, has among the highest vaccine rates and no restrictions, but other countries may not be so bullish, even with high take up. Many don’t have the luxury.
Obviously China is different than most others though, due to how much oil it imports and consumes which is why outbreaks there have an outsized impact.
The fact that China is already importing lower numbers of crude, as well as other commodities like iron ore and copper, doesn’t help the outlook or prices. Although crude imports did rebound in July as state backed refiners returned from maintanence.
Gold bounces back but remains in bad shape
Where do we start with gold (or silver for that matter)? First thing to say is that they are in bad shape following Friday’s jobs report.
While there’s still plenty of data to come over the next month that could sway the FOMC, it’s looking inevitable that a taper announcement is not far away, probably in September.
That’s naturally bad news for gold prices, with US yields now back on the ascendency and the 10-year pushing 1.3%. The dollar is in good shape once again and this is bad news for the yellow metal and it seems the combination of these factors with major technical support levels and low liquidity, caused the plunge we saw overnight.
Gold smashed through $1,750 support and it seems the stops and illiquid markets did the rest, with the price not finding support then until roughly $1,680, which was key support in March and marks the 61.8% retracement of the 2020 lows and highs.
Price has since rebounded, which will provide no comfort to those caught up in the turmoil, but remains just below $1,750, which now stands out as major potential resistance.
