Another bear market rally

Stock markets have given back earlier gains on Wednesday, with Europe poised to end the day with decent losses ahead of tomorrow’s ECB meeting.

There have been two big focal points for European investors this week; the ECB meeting and Nord Stream 1. And in both cases, there has been a lot of movement. So much so that I’m more confused as to the outcome of them than I was at the start of the week.

Markets are increasingly pricing in a 50 basis point hike from the ECB tomorrow, with the view now being that it’s a coin toss, despite clear prior warnings that it’s likely to be 25. The central bank has left the door open to super-charging the lift-off previously but given its past tendency to proceed with extreme caution, it would send quite the message about how concerned they’ve become.

We’ve had lots of commentary on Nord Stream 1 maintenance this week and the potential resumption of gas flows on Thursday. The view now appears to be that gas will flow once more but at reduced capacity, similar to before maintenance began. While only being about 40% of capacity, that may come as a relief to Brussels considering the implications of it not restarting at all.

As ever though, what is said and what actually happens aren’t necessarily the same thing. And when it comes to Russia this year, it often isn’t. There is a broad range of outcomes tomorrow for Europe that may tell us how hard winter is going to be.

Markets ignore Bailey’s warning

Investors ignored BoE Governor Andrew Bailey’s warnings about a 50 basis point hike not being locked in following the inflation report on Wednesday, with markets pricing in an 88% chance of it happening. That’s a little less than earlier in the day but still, it’s heavily backed and therefore assumed to be all but set in stone.

What’s more, 150 basis points over the next three meetings is also quite heavily back at around 45% so it seems investors are not heeding Bailey’s warnings. And with inflation hitting 9.4% in June and seen peaking above 11%, who can blame them? Apart from the Governor, of course.

A decoupling underway?

The last week has seen bitcoin shrug off bouts of risk aversion in the broader markets and then outperform in periods of positivity. Are we seeing a decoupling between cryptos and other areas of the market or is there something else going on? I doubt we’re seeing a decoupling and I still can’t see it being anything more than a corrective move. Perhaps it’s a relief rally at the newsflow not deteriorating further. Or a final push at creating a bottom. Whatever it is, bitcoin has hit a five-week high and that may start tempting people back in.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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