Remaining cautious

Equity markets are marginally lower after strong sessions on Monday and Tuesday, a sign that investors are remaining cautious despite encouraging data on the new variant.

Volatility is going nowhere over the coming weeks but investors are clearly enthused by what the early data is telling us. That said, with the UK considering “plan B” restrictions, it would appear leaders are not as enthused by what they’re seeing, which frankly makes me wonder whether markets are getting ahead of themselves.

The knee-jerk reaction to the new variant was obviously overdone based on the information we now have but where the markets will end up is anyone’s guess. There’s still plenty more to learn. Of course, investors love to buy those dips so no one would be surprised if we were in the early stages of this year’s Santa rally.

There are so many different risk factors to contend with right now. Just as Covid appeared to take a back seat for much of the last few months, there’s now far less talk of inflation risks and interest rates. Markets are now pricing in little chance of a rate hike next week from the BoE and a faster taper from the Fed also looks less certain.

Is the market going to reward such caution from the central banks or will inflation fears take over again and push real yields lower. That would certainly be great for gold prices in the near term but could make for some nervous times next year. As has been said so often recently, central banks are stuck between a rock and a hard place and life isn’t getting any easier for them.

Can bitcoin cling on?

Bitcoin has clawed its way back above USD 50,000 and appeared to be clinging on after sinking back below earlier in the day. The risk rebound we’ve seen in the markets has aided the recovery but it still looks vulnerable after the weekend plunge and any sudden shift in risk appetite could trigger another dip. Should it hold above USD 50,000 then the next test remains around USD 53,500, with a move above leaving it on a much stronger footing and perhaps signaling the end of the correction.

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

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