An uninspiring start to trading on Tuesday, with all eyes clearly on Jerome Powell’s testimony in the Senate after the open.
European stocks have pulled back as the morning has progressed and find themselves largely in negative territory and US futures suggest we’re going to similar moves there, with tech stocks being hit particularly hard on the open.
Rising yields are continuing to make investors nervous, which is why today’s testimony is so important. Not only do we get the latest views from the Fed Chairman, but he’ll also likely be grilled on what the recovery means for monetary policy and what impact a $1.9 trillion stimulus package will have.
It’s therefore a great opportunity for Powell to put investors’ minds at ease, something that may be necessary a number of times over the coming months as we move into the recovery phase of the pandemic and away from lockdowns and restrictions.
I can’t imagine Powell will be in any rush to warn of bond buying being withdrawn and risk causing a stir in the markets but even the hint at such a move, or a miscommunication, can be taken the wrong way. The Chairman will have to be very careful, or perhaps risk causing a mini taper tantrum.
Once the recovery is well underway and the economy is firing once again, the Fed may feel it’s appropriate to start discussing reducing bond purchases but now is surely not the time. Powell will probably be well prepared to dodge the difficult questions but whether he does enough to get investors back on board is another thing.
Sterling eases off highs after jobs report
The pound appeared to get a bit of a lift earlier in the day from the UK jobs report which showed unemployment rising to 5.1%, in line with expectations. The uplift likely came from the rise in wages, which at 4.7% was much higher than the 4.1% that was forecast.
The recovery this year is going to be consumer driven, with pent up demand and increased aggregate savings being unleashed as people break free of their homes and enjoy the kinds of experiences that have been kept from them for so long.
Numbers like this in the jobs report are encouraging. Another key factor will be keeping the unemployment rate as low as possible, which makes next week’s budget all the more interesting. With restrictions remaining in place for a few months yet, one final push will be necessary and businesses will be relying on the Treasury to see them over the finish line.
Oil losing momentum ahead of OPEC+ meeting
Oil prices are a little flat again today after surging to fresh highs again on Monday. Despite the move, there are signs of momentum flagging a little, which given the proximity to next weeks OPEC+ meeting, may not be a coincidence.
The last meeting was a huge success but only because Saudi Arabia took a one million barrel hit. With Russia likely to push for another production increase at the meeting next week and others potentially itching for one as well, it could be an intense meeting.
And with prices above $60 a barrel and countries moving towards loosening restrictions for the last time, Saudi Arabia may have a tougher job persueding members to hold off. I expect over the course of the next week, oil will see increasing resistance to any rallies and momentum indicators may back that up.
Gold eases ahead of Powell
Gold is pulling back a little again today, hovering just above $1,800 after the dollar index saw support around 90, a critical support level. A loss of this could spell the end of its resurgence and be supportive for gold prices.
Of course, much of this will likely depend on how Powell handles the heat today and whether he can convince investors that the Fed has no intention of removing any support. Rising yields have supported the dollar and been damaging for gold prices but a convincing performance from Powell may change that.
Gold ran into resistance around $1,815-1,820 earlier today and that could be a key level later today. A move above here may coincide with a break of 90 in the dollar index, which could trigger a much sharper move.
A correction for crypto?
Bitcoin has pulled back a little over the last couple of hours but remains more than 8% lower on the day. The cryptocurrency initially plunged on the back of Elon Musk’s suggestion that it was looking a little high. The fall that has taken place since shows just how wild an instrument it is, how overbought it had become and how influential the Tesla CEO now is in the space. I’m not sure any of that is a good thing.
That probably won’t stop it surging back above $50,000 in the very near future and probably hitting new highs shortly after. Bitcoin fever hasn’t gone away all of a sudden because Musk has questioned the price but his Twitter feed has certainly become a primary catalyst for the market.
Bitcoin appears to have found some support for now but it could still come under pressure. I’m not sure that looks most likely, but if it does then the $40,000-42,000 region will be really interesting. This is where it was seeing resistance before Musk became every crypto supporters best pal and brought Tesla’s money with him.