Reality kicking in

It’s been a strange week in financial markets, one in which we’ve learned relatively little but reality appears to be slowly catching up on some.

I say that as someone that doesn’t think things will be as bad as they currently seem on interest rates and the economy but equally is of the belief that markets should at least reflect the risk of it being so. We are seeing that in some corners of the market but equity markets – and cryptos for that matter – have been reluctant to be discouraged.

They may well be rewarded but moves this week on the back of relatively little suggest nerves are appearing. The FOMC minutes were not ideal – most notably the reference to potential backing for a 50 basis point hike – but it wasn’t exactly new information either. Of course, the data since then probably compounds those comments.

I also say this writing today’s report not long before the latest inflation data, and the Fed’s preferred measure at that. The CPI numbers a couple of weeks ago didn’t bode well for this release which may explain why investors are slightly more defensive as we near the end of the week. Could the core PCE price index enable us to end it on a high?

Consolidation

Oil prices are a little higher at the end of the week but broadly speaking nothing has really changed. Brent and WTI fell back toward the bottom of their ranges over the last couple of weeks and have rebounded slightly off their 2023 lows, continuing the consolidation that started in early December. There’s little reason to suggest we’re on the verge of a breakout against the backdrop of optimism around China and some pessimism around the global economy.

Preparing for the worst

Gold is continuing to edge lower, testing the lows from the end of last week. This is probably a sign of traders preparing for the worst from the inflation data. That’s understandable given everything we’ve seen and heard over the last month. A larger-than-expected decline could see it sharply reverse course though, with $1,860 then being of interest above and then $1,890-$1,900 above that. Should the data confirm those fears, $1,780-$1,800 below could be key.

Resilient

As has been the case for weeks, bitcoin is showing some resilience having once again seen strong support around $23,500. A strong inflation number could put that to the test while something at the lower end of expectations could do the same around $25,500, a move above which could be a major breakthrough.

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

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