Risk appetite makes a return

We’re seeing a strong start to September in the markets, just as we move into the business end of the week.

Choppy trade on Tuesday appeared to put some on edge but clearly, that was a little overblown, with month-end perhaps having a role to play. There are obviously downside risks to the outlook for the rest of this year, with the spread of delta naturally casting a shadow over the global recovery but there’s also plenty of reason to be hopeful.

Not only is the economy in a far better position than previously feared, vaccine rates in many countries mean restrictions during surges will be far less severe than before and central banks will be in no rush to withdraw stimulus. We are hearing a lot more talk of tapering of pandemic stimulus and rate hikes but this will be extremely gradual and heavily communicated.

The focus here is naturally on the Fed and, as Powell said on Friday, while tapering may begin later in the year, it will be done cautiously and is in no way indicative of when rates will rise. Against this backdrop, I don’t think investors are as anxious about a policy misstep as they could be because it seems far less likely than it has been in the past.

There looks to me to be a lot of underlying optimism in the markets, despite the fact that the coming months will no doubt throw up some nasty surprises and businesses are already a little nervous about what the end of the year will bring. Of course, with plenty of data to come this week, including Friday’s jobs report, the mood could change.

ADP miss a concern to no one, it seems

ADP payrolls fell well short of expectations on Wednesday, coming in almost half of market forecasts and potentially sending a terrible warning sign ahead of Friday’s jobs report. As we’ve seen so often in the past, the data piqued the interest of those in the markets but didn’t get much of a reaction, owing to its rare ability to actually provide reliable insight into the jobs report two days later.

The dollar was a little softer, US futures pulled back marginally, gold crept higher but we’re talking very small moves. The data was interesting and will certainly get people thinking about the potential for a big miss in Friday’s NFP number – which is currently forecast at around 750,000. But that’s about it.

Bitcoin bounces back but correction warnings still there

Bitcoin is making small gains on Wednesday but remains under pressure after it survived its first test of USD 46,000 support. It rebounded higher just ahead of this level but continues to look vulnerable to a move below that could send it into correction territory. The failure to make a new high earlier this week doesn’t bode well for bitcoin.

That’s not to say we’ll see a mammoth drop in the price, the kind of which we’ve now seen on multiple occasions. Rather, a correction may be on the cards. Support could then appear around USD40,000-41,000, which would coincide with those June and July highs and the 200-day SMA.

Bitcoin always has the potential to surprise and while everything seems to be pointing to a correction right now, nothing would surprise me about a sudden surge in the price. Perhaps a break of US 46,000 will change that but one thing is clear, it’s certainly lost momentum in recent weeks and that, typically, isn’t a great sign.

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