US futures are flat while Europe is seeing a small recovery after trading in the red ealier in the session.
We’re going through a very choppy period in the markets, with investors uncertain how to read the movements we’re seeing in bond markets. The curve is steepening and investors are fretting a little about the prospect of higher inflation.
Policy makers are doing their best to alleviate these fears but there appears to be a growing consensus that we will see more inflation this year as a result of the turbo-charged recovery everyone is anticipating. The question is how temporary any inflation spike would be and how willing policy makers will be to look beyond it.
They may have a more relaxed approach to rising inflation than they have in the past but that will only go so far if prices are rising faster than what we’ve seen for many years. This may make for a jumpy year in the markets, with any signs of inflation seeing jitters quickly return and any rallies to stall, just as we’re experiencing at the moment.
Jerome Powell will have another opportunity to quell these fears today but I struggle to see what he can say that he didn’t yesterday. Rather, the greater concern is that he says something that fuels the unease, rather than alleviates it. I don’t see this as likely but it will be interesting to see where markets stand after because we’ve only seen a marginal improvement since yesterday’s appearance.
Oil loses momentum ahead of OPEC+
Oil prices are nudging higher again on Wednesday, with Brent up close to 0.8% and WTI lagging behind, up a little over 0.5%. Prices continue to be supported by the global recovery trade but the trend is showing signs of exhaustion ahead of next week’s OPEC+ meeting.
The discussion is likely to be intense again, with Saudi Arabia once more likely to be among the more cautious and Russia at the other end of the scale. US shale remains an ever-present risk for the group of producers and current prices may be making them nervous.
The workaround last month involved the Saudi’s taking a bit hit in order to ensure unity in the group. If they’re once again going to push for restraint, they’re likely to face stronger opposition this time around which should make for an interesting outcome.
Gold sluggisg after Powell testimony
Powell’s testimony on Tuesday was no gamechanger but it was successful in not spurring further unease in the markets. The dollar remains above 90 though, with that crucial support still holding. A break of this would be bad news for the greenback and risk sending it back to its early January lows, maybe even lower.
Time will tell just how successful Powell’s comments will be and he’ll have another chance to reinforce that message today. Yields have eased off slightly at the longer end of the curve, although they are a little higher on the 10-year today.
If yields ease off, it could be enough to force the dollar index back below 90 and propel gold higher. As it stands, it’s sluggish as the dollar is still technically in bullish territory and hanging in there but that could soon change, one way or another.
Bitcoin sets its sights higher
Bitcoin is once again making a strong comeback today, up around 5% and back above $50,000. It fell sharply earlier this week on the back of Elon Musks belief that it is a little high, which triggered some profit taking across the crypto space. As is so often the case, the correction was short and sharp and I imagine crypto fans already have their sights set on new highs.
I’m not sure Tesla’s shareholders will be too thrilled with Musk creating two way price action on bitcoin given their recent investment and its own price plunge over the last 48 hours. Either way, I struggle to see this being too painful for long. The party goes on.
