US and European stock futures are trading cautiously higher as traders continue to worry about the ongoing US debt ceiling drama. There is no doubt that the equity markets in Europe and America recorded solid gains as the Nasdaq flirted with its one-year high—an index that largely underperformed last year and has been posting lacklustre performance numbers this year as well.
The fact about the debt ceiling is that it is more of a political drama than anything else. Traders know that this is the time when politicians in America can flex their muscles, and everyone has their own agenda behind it. What it does is that it creates unnecessary volatility in the markets and shakes confidence among investors and traders in the US as being a safe haven place with respect to investments. We have seen credit default prices move higher as speculators believe that gridlock can potentially make the US default on its repayment terms. Nonetheless, history tells us that every time the conversation about debt ceilings comes under the spotlight, politicians do begin to dance, but eventually they do come to their senses, and the can is clicked down the road—after the debt ceiling is basically nothing more than a line in the sand that politicians jointly agree to increase.
Economic Docket and FOMC Minutes
Moving away from the drama of the debt ceiling, there is one important economic event on the docket that is going to gather the most attention among traditional traders, and that is the FOMC Minutes. The thing that traders want to know is if the Fed Chairman really means what he said last week, which is that interest rates in the US may not need to increase as much as many have thought. Most traders and investors believe that the US has reached its peak in terms of its interest rate hike cycle and that the time has come for the Fed to pause the interest rate cycle. However, it is this week that we will see the joint view of the Fed officials on this matter. The FOMC Minutes will be released on Wednesday at 7:00 p.m. UK time, and they are bound to bring higher volatility for the equity markets and, of course, for the dollar index.
Dollar Index Moves Lower, Kiwi To Pick Up More Strengh
Speaking of the dollar index, there is no doubt that many currency traders believe that the path of least resistance is most likely to be skewed to the downside when it comes to the dollar index. We have seen some weakness in the dollar index, and it is highly likely that in the coming days we will see more weakness in the dollar index. As for the pound, the Bank of England’s governor will be speaking on Wednesday, and the hope is that the bank will slow down the roll on its interest rate hike, although speculators believe that the double-digit inflation in the UK is going to keep the bank on its edge and that there are more interest rate hikes in the pipeline. RBNZ will also announce its monetary policy decision this week as the RBA did increased its rate a few week back, and once again, market players expect the bank to increase the interest rate by another 25 basis points to 5.50% from its current level of 5.25%. The Kiwi-dollar pair is likely to experience more strength going into this event, which will take place early Wednesday morning.
Weakness Continues For Gold Prices
Gold prices continue to trade below the critical price level of $2,000 even though traders are largely worried about a potential default from the US if politicians do not stop their circus. Gold prices have started to cool off after recording stellar gains, and last week we saw more traders booking their profits. However, we do strongly believe that the shinning metal does represent an opportunity at current levels, as there is still a major threat of a further slowdown in US economic growth, inflation is still incredibly high, and the Fed has got their act together. Traders are likely to be listening to every single word from Jerome Powell when the Fed Minutes are released on Wednesday, and the event is bound to create more volatility for the shining metal. It is possible that the on-going higher interest in riskier assets such as stocks may push traders to take more profit off the table, and the price may slide further and begin to flirt with the 1950 price mark. In order for bulls to become convinced about another rally, the price needs to move above the 2,000 level.
Oil Traders Worry About OPEC
In the oil market, traders are worried about the current weakness in the price action. Crude oil has strongly started to flirt with price levels, which will make the OPEC cartel begin its dance once again. The cartel certainly doesn’t like the price falling below the 70 mark, but the reality is that with slower economic growth and weak spending among consumers, the path of least resistance is more skewed to the downside than anything else. The fact that we have no solution or insight about the US debt ceiling only creates more cautious behaviour among oil traders.
