Stock Futures
US and European stock futures are trading flat as traders aren’t fully convinced if it is the right time to buy riskier assets. However, there are still some who believe that the Fed has run its course and they have little to no choice but to ease off the gas throttle.
US Stock Market
The headline data in the US has stated to print disappointing numbers in the US, which points to an opportunity for many traders. This is because this is a situation where bad news is good news as traders expect the Fed to slow its roll with respect to its monetary policy. The Fed has been on an aggressive monetary policy path for some time, but now traders believe that they have run out of runway and it is time to slow down before they crash the biggest economy in the world. Many people have doubts about the Fed’s reputation again because of the policy they chose. This is because the Fed did not choose the right monetary policy to keep prices stable.Prior to this, they almost made a blunder by labelling inflation as transitory.
China and US Tensions Over Taiwan
Traders are also keeping a close eye on the geopolitical tensions. Things are heating up once again, and it is likely that many aren’t actually paying close attention to this. Today, we heard China sent a strong warning to the US by recommending the US House Speaker not meet Taiwan’s president. Taiwan is an immensely sensitive topic for China, and on this topic, tensions have flared up dramatically between the US and China before as well. President Biden had to make a U-turn on his previous remarks to cool things off.
We think that investors should continue to keep a close eye on this situation, as things can get out of control fairly quickly, and no one really needs another geopolitical conflict at this stage, especially since everyone is already paying a much higher price for the on-going conflict between Russia and Ukraine.
Currencies
In the forex market, it has been pretty much about the RBA’s monetary policy, which matched market expectations and left the powder dry. Speculators were thinking that the bank will increase the interest rate by 25 basis points as the RBA wants to bring inflation back to its original range of 2% to 3%. Going forward, traders should continue to remain cautious as the RBA’s decision could shift in its next meeting if it feels that inflation isn’t retracing to its normal.
As for the US dollar, we do have FOMC member Cook speaking later. It will be a matter of adding or subtracting more noise from the equation. This is because market players largely believe that the Fed should make the tradeoff now and not increase the interest rate further. We have seen some weakness in the dollar index for the past few days, and this has brought life back to the euro and sterling. But we do need to practise caution with respect to the dollar index, as this is a big week for the dollar with the US NFP data coming out on Friday, which could really change the odds for everything. Later on today, we do have JOLTS numbers coming at 3:00 PM GMT. The economic data is expected to have limited influence on the dollar index unless the actual number shows a significant shift from what is expected.
Oil
Brent and crude oil prices are holding on to their gains, which they scored on the back of OPEC’s surprise cut. Yesterday, the White House showed its further disappointment towards oil-producing nations and their decision to reduce oil supply at a time when global growth is already suffering. However, what the US needs to understand is that OPEC’s biggest player no longer feels that they need to pay attention to the feelings of the US with respect to their oil supply decision. They paid no attention to Biden’s comments when they reduced the oil supply back in October last year. We think the only party out of sync with respect to reality is the US, as Saudi Arabia has made it clear that it is marching on its journey and has no time to sit down and worry about the US’s feelings.
We think oil prices are very likely to remain strong, although a retracement is certainly due, and we could see some profit-taking on the back of poor economic data. An economic data set that paints a miserable picture for the global economy would make traders think again about strong oil demand, especially in China, as the country is really busy fully opening up its economy.
Gold
The previous metal continues to flirt with the level of $2,000 per ounce, and this week the price can topple that level on the back of economic readings. The US NFP number and the US ADP data are the most economic data sets that can make gold’s price truly challenge that level. Remember, what is anticipated here is that bad news is good news for the economy, and this means a slower economic reading is more likely to force the Fed to stop pushing the curve further.
