It’s been a solid start to the year for equity markets but that optimism appears to be fading as policymakers queued up in Davos to push back against market interest rate expectations.
Let’s be clear on this, the markets have a much better record over the last 18 months of anticipating shifts in interest rates than central banks so to some degree these warnings will fall on deaf ears. But then, they come at a time when stocks have had a good run so perhaps it’s a case of any excuse to lock in some profits.
Lagarde’s warnings falling on deaf ears?
ECB President Christine Lagarde was among those to warn about overly optimistic market expectations, insisting that she would “advise market participants to revise their positions”. It’s hard to take the advice too seriously considering how late to the party the ECB was. While every situation was different, to have seen the experience of most other central banks and think “that won’t happen to us” before diving into an aggressive catch-up tightening cycle doesn’t leave you with much credibility.
CBRT holds for now
Of course, compared with the CBRT the ECB looks like it’s doing a stellar job. While the latter was late to acknowledge that the house was on fire, the former decided the throw fuel on it and see what happens. After another series of rate cuts, the CBRT recently decided it was time to pause again and assess the damage. Official data recently showed inflation is falling but from extraordinarily high levels. I’m sure we’ll see further cuts at some point in the future but it would seem today was not the time. Although at this stage I have no idea exactly what they’re looking for and how they’re coming to the conclusions they are.
Oil eases around prior highs
It would appear the profit-taking we’re seeing elsewhere is weighing on oil as well, with Brent and WTI off around half a percentage point after reversing off their highs yesterday. The reversal occurred slightly above the late December and early January peaks so it’s perhaps a natural profit-taking zone, especially occurring around a broader risk reversal.
Gold eyeing a correction?
Gold is pushing higher again today but the broader rally appears to have stalled. That may not come as a big surprise, occurring in a zone between $1,880 and $1,920 where we’ve seen plenty of support and resistance in recent years. It had plenty of momentum going into these levels but that has now faded which could signal a potential correction.