(Craig Erlam – MarketPulse)
A mixed start to trade in Europe after a more promising session in Asia overnight where stocks may have been boosted by talk of more pro-growth policies in China.
That followed disappointing data late last week and early this from the world’s second-largest economy so the comments came at a good time. Still, we’re not seeing investors getting too carried away by comments alone, action needs to follow and small rate cuts from the PBOC don’t really fall into that category.
More misery for the UK as prices rise by the most since the early 80s
UK inflation hit its highest level in 40 years last month, with the annual CPI jumping 10.1% and the core reading 6.2%, both faster than expected. Double-digit inflation was inevitable but it has come earlier than expected which will leave households and businesses worrying about what that ultimately means for peak inflation later this year and how sustained it will be.
The data today has probably locked in a 50 basis point hike from the Bank of England as a minimum, especially when combined with yesterday’s wage growth numbers. Real incomes are still falling at a rapid rate but the central bank will have little choice but to persevere regardless and the economy will suffer the consequences.
RBNZ committed to tackling price rises as it raises the cash rate peak
The New Zealand dollar is trading a little lower on the day but the session has been quite volatile. We’ve seen some big swings in response to the RBNZ announcement despite the rate decision itself falling in line with expectations. The central bank now expects the cash rate to peak higher and earlier than previously anticipated, hitting 4.1% in the second quarter of next year, compared with 3.95% in Q3.
The RBNZ still firmly believes though that the actions it’s taken will both return inflation to the midpoint of its 1-3% target range in 2024 and not trigger a recession, although it did caution that the country will likely experience sub-par growth. That all sounds very hopeful but BoE aside, that appears to be the view of central banks still.
Fed minutes eyed as traders seek dovish pivot clues
There’s plenty more to look forward to today but the FOMC minutes naturally stand out. What’s interesting about them is that despite the supposed “dovish pivot” from the Fed, the commentary since has been anything but. Rather than talking up the prospect of falling inflation allowing for slower tightening, the message remains hawkish. What’s more, policymakers are continually pushing back against the policy u-turn next year that markets have been flirting with the idea of.
I expect any hawkish components of the minutes will be overlooked today and instead traders will dissect them for any additional dovish concessions that could further fuel the stock market recovery. That’s very much what we’ve seen in recent weeks and the decline in CPI last week only encouraged it.
Oil rebounds off support as JCPOA talks continue
Oil prices are edging higher on Wednesday, bouncing off technical support over the last 24 hours as Chinese Premier Li pushed for more pro-growth measures from local officials. There are growing downside risks as a result of the growth outlook and ongoing uncertainty around Chinese Covid restrictions.
What’s more, talks between the US and Iran are continuing around the nuclear deal which, if it gets over the line, could be a big positive for oil supply and therefore a negative for prices. There is no shortage of scepticism around the prospects for the JCPOA to be revived though but we may be reaching a point where that will become clear. For now, Brent appears to have decent support around $92.
Gold flat after a pullback
Gold is marginally lower on the day with focus fully on the Fed minutes later in the day. The yellow metal has been knocked back in recent days after briefly breaking through $1,800 resistance. It’s remained quite resilient though against the backdrop of a strengthening dollar and the FOMC minutes later could potentially reward that.
Could Fed minutes be the catalyst bitcoin needs?
Bitcoin rallies have struggled to generate much momentum of late, with $25,000 proving to be a strong barrier to the upside. What’s interesting is how shallow the pullback has so far been from that level which could be a bullish signal. Traders may be struggling to get on board with a break higher but they’re perhaps not keen to cash out either. The FOMC minutes later may be the catalyst it needs, one way or another.