US and European stock futures are pointing to a lower open as investors are very much picking up where they left off yesterday. The Dow Jones Industrial Average broke its winning streak yesterday after logging four days of gains. The fact that markets are retracing from their recent highs is that there is this concern among traders that higher oil prices are going to undo all the efforts of central banks, which are trying to tame inflation. If oil prices cannot go back to the mid-50s or early-60s price handle, then it means that the central bank will have another major battle to fight, and we aren’t sure that there is just enough juice left among consumers to bear more pain. In addition, the JOLTS data released yesterday in the US also confirmed that the strongest part of the economy, the labour market, has lost its strength as the number of available positions fell below 10 million for the first time in nearly 24 months.
US ADP Data
When it comes to economic data, investors and traders must take every aspect of it with a pinch of salt, and this is because we trade very close to what we call bad news is good news phenomena. Weakness in the economy is more than likely to encourage the Fed to slow down the pace of their interest rate hikes, which is something that many speculators are already betting on. Although it is important to note here that some members of the FOMC still believe that the Fed has more work to do to control inflation. For instance, Cleveland Federal Reserve Bank President said yesterday that the Fed still needs to raise interest rates further. But she did balance her hawkish statement with some dovish comments by saying that the Fed is paying close attention to the demand equation.
Overall, what matters most is the economic data, and it is in this essence that we believe that the US ADP, which is due to be released, will command the most attention among traders. The consensus is for the reading to print the number 208K, while the previous reading was 242K. This is a number that is going to dictate the trading price action from here onwards until Friday when the US NFP data will be released.
RBNZ Delivers A Surprise
In the forex market, it is mainly about the Kiwi moves today as the RBNZ surprised the market by punching above its weight and delivering another interest rate hike of 50 basis points. The bank certainly thinks that the economy is strong enough to bear the burden, but in reality, we believe that there is a disconnect as to how much pain consumers can take from here. Global economic growth is slowing, oil prices are still high, and increasing interest rates will only take more money out of consumers’ pockets unwillingly. The final number for inflation in New Zealand for 2022 was 7.2%, and the bank’s target is anywhere between 1-3%. This is again a wide gap, and something needs to give in order for the country to see a more reasonable level.
Gold’s Big Test
The precious metal has crossed above the $2000 price level, an important resistance, but the most important thing to note here is how long it can continue to trade above this price handle. For now, the weakness in the dollar index and concerns over higher oil prices and their impact on the economy are very supportive of the price where it is now. But traders should adopt caution about how much of a dovish message they may hear from the Fed in the coming future. But again, economic data is really important today, and a number that could sting the bulls today would be the US ADP number.
