A cautious start to the week ahead of a bunch of central bank meetings that will likely set the tone for the remainder of the year.
There’s every chance that by the end of this week, the bulk of the major central banks have ended their tightening cycle and in many cases, signaled such as the ECB did last week. They’ll never say definitively that it’s over but, as the ECB did, they may indicate that it’s their current view that they’ve hiked enough.
The question now is how much that tightening will weigh on economic prospects going forward and whether further inflation surprises are lurking ahead. We’ve clearly seen a cooling in the economy, with the US showing more resilience than most but still slowing and likely to further, but it’s hard to imagine rates as high as they are for longer not packing a greater punch.
While there are some interesting economic releases over the next couple of days, for many the week really starts on Wednesday with UK inflation numbers and the Fed interest rate decision later on. After that, the central bank decisions will come thick and fast until Friday. It promises to be a fascinating week.
Relentless oil rally showing no signs of exhaustion
This oil rally has been relentless and I’m not seeing any signs of exhaustion yet. A 15% rally in the space of around three weeks to trade at levels not seen since last November and not far from triple figures, it’s been an impressive move and there could be more to come.
Saudi Arabia and Russia have been very effective in squeezing a tight market that much further to create a situation in which oil prices are trading well above the zone they’ve been stuck around for much of the year. You would imagine there’ll be a limit to their ambitions, not to mention their desire to continue the additional voluntary cuts but that may well depend on the demand side over the coming months.
They’re committed until the end of the year but if demand softens as those additional cuts expire then the price could cool somewhat. The group has been heavily criticized over the last year for what were labelled unjustified cuts but for the bulk of that time, the price hasn’t risen as much as thought. Is this a sign of cuts going a step too far or will demand weaken to the point of prices pulling back again?
Going testing major resistance zone
Gold has pulled off its lows in the final run-up to the Fed meeting, perhaps a sign of hope that we’ll get a more dovish outcome than expected like we got from the ECB. The yellow metal slipped back to $1,900 late last week before rebounding higher to $1,930. This is where it also ran into significant resistance 10 days ago and could now represent a major technical level. A break of this could be very interesting, especially if it occurs ahead of the Fed meeting.
