We’re seeing a strong start to September in the markets, just as we move into the business end of the week.
Choppy trade on Tuesday appeared to put some on edge but clearly, that was a little overblown, with month-end perhaps having a role to play. There are obviously downside risks to the outlook for the rest of this year, with the spread of delta naturally casting a shadow over the global recovery but there’s also plenty of reason to be hopeful.
Not only is the economy in a far better position than previously feared, vaccine rates in many countries mean restrictions during surges will be far less severe than before and central banks will be in no rush to withdraw stimulus. We are hearing a lot more talk of tapering of pandemic stimulus and rate hikes but this will be extremely gradual and heavily communicated.
The focus here is naturally on the Fed and, as Powell said on Friday, while tapering may begin later in the year, it will be done cautiously and is in no way indicative of when rates will rise. Against this backdrop, I don’t think investors are as anxious about a policy misstep as they could be because it seems far less likely than it has been in the past.
There looks to me to be a lot of underlying optimism in the markets, despite the fact that the coming months will no doubt throw up some nasty surprises and businesses are already a little nervous about what the end of the year will bring. Of course, with plenty of data to come this week, including Friday’s jobs report, the mood could change.
ADP miss a concern to no one, it seems
ADP payrolls fell well short of expectations on Wednesday, coming in almost half of market forecasts and potentially sending a terrible warning sign ahead of Friday’s jobs report. As we’ve seen so often in the past, the data piqued the interest of those in the markets but didn’t get much of a reaction, owing to its rare ability to actually provide reliable insight into the jobs report two days later.
The dollar was a little softer, US futures pulled back marginally, gold crept higher but we’re talking very small moves. The data was interesting and will certainly get people thinking about the potential for a big miss in Friday’s NFP number – which is currently forecast at around 750,000. But that’s about it.
Oil steady ahead of OPEC+
Oil prices are steady ahead of the start of the OPEC+ meeting. They’ve rebounded strongly over the last week or so as China got to grips with its latest Covid outbreak. The final months of the year may pose some challenges on the demand side for the group but, given current price levels, I can’t imagine they’ll be in any rush to change course from the current plan of increasing production by 400,000 barrels per month.
A large drawdown in inventories reported by API on Tuesday did little to lift oil prices which pulled back a little from Monday’s highs. EIA is due to publish its inventory numbers a little ahead of the OPEC+ meeting and is expected to report roughly in line with the API number.
WTI stalled earlier this week just shy of $70, which has previously been a bit of a psychological barrier for it. We could be seeing that once more, with the pullback simply being a case of profit-taking as the market assesses the full impact of Hurricane Ida on the industry.
Gold shrugs off poor ADP
Gold is treading water on Wednesday and the ADP did little to change that. The greenback eased a little following the release, which gave gold prices a small boost but we’re talking very small numbers. It goes to show how little weight the ADP report carries these days, that such a large miss can be so easily shrugged off by the markets.
That leaves gold to ease its way into the jobs report at the end of the week, when I’d expect to see a much greater response to the data, especially if we’re talking a miss of that magnitude. With gold hovering so close to the July highs around $1,833, the jobs data will be huge for the yellow metal, with a break above here putting it firmly back into bullish territory.
Whether it can sustain a move above there is another thing, with the Fed making clear its intentions still to taper this year. Interest rates and tapering may not be linked but one will naturally follow the other and if the data continues to be good enough to taper this year then hikes won’t be that far behind. The US economy is in a very good position still, despite some worrying trends over the last few weeks.
Bitcoin bounces back but correction warnings still there
Bitcoin is making small gains on Wednesday but remains under pressure after it survived its first test of $46,000 support. It rebounded higher just ahead of this level but continues to look vulnerable to a move below that could send it into correction territory. The failure to make a new high earlier this week doesn’t bode well for bitcoin.
That’s not to say we’ll see a mammoth drop in the price, the kind of which we’ve now seen on multiple occasions. Rather, a correction may be on the cards. Support could then appear around $40,000-41,000, which would coincide with those June and July highs and the 200-day SMA.
Bitcoin always has the potential to surprise and while everything seems to be pointing to a correction right now, nothing would surprise me about a sudden surge in the price. Perhaps a break of $46,000 will change that but one thing is clear, it’s certainly lost momentum in recent weeks and that, typically, isn’t a great sign.
