Stock futures in the US and Europe are expected to stay quiet ahead of the two major events that will take place later today. This is essentially the calm before the storm.
UK’s CPI number
To begin, traders in the United Kingdom will get a taste of heightened volatility when the country’s CPI data is revealed. Remember that inflation is a beast that rises quickly but descends slowly. Since energy costs in the UK have fallen and gasoline prices have become more affordable, it is expected that the headline figure would improve.
This implies that, for the first time in a long time, inflation in the United Kingdom might fall into the single digits. This would be welcome news for FTSE 100 traders who have been on edge and concerned about inflation. A lower inflation rate raises the chances that disposable income would rise, thus spurring some expenditure. At the same time, the cost of living crisis that has engulfed the whole nation may be easing.
But, speculators will be particularly concerned about food inflation and core inflation figures. The headline figure means nothing to them, and the odds of a big improvement in food inflation and core inflation are slim. Still, a decline in the headline figure will be enough to bolster market mood today, particularly ahead of the Bank of England’s interest rate decision tomorrow. One thing is certain: the Sterling will take a wild trip during the next 24 hours, so make those stops as tight as possible.
Moving away from the UK, it will all be about the Fed. Their credibility is at stake; it is commonly assumed that the Fed is to blame for the present financial crisis. Yet, in recent days, particularly yesterday, we have witnessed a significant recovery in the shares of US regional banks as a result of statements by the US Treasury Secretary, who has essentially said that the government is willing to issue blank checks to ensure depositors’ money. Yesterday, she sought once again to restore customer trust in the US financial sector, but the fact is that the troubles are far from finished.
The financial system’s meltdown began mostly as a result of the Fed’s assertive approach. Speculators understand that they may profit from this trade, particularly if the Fed refuses to accept that it is their fault that we are here today.
The Federal Reserve Meeting
Heading into the meeting, the Fed is expected to raise interest rates by 25 basis points, which is still much lower than when Jerome Powell, the Fed Chairman, delivered his statement to Congress a few weeks ago. Traders began pricing in a 50 basis point interest rate rise for today’s meeting at the time. Yet, the crisis in US regional banks has caused traders to reconsider their views, and the broad belief today is that the Fed will take its foot off the gas pedal.
The possibility of traders being taken aback by the Fed is rather significant, since when the ECB’s President entered the spotlight, it was generally assumed that she would address Europe’s ongoing banking problem. But she didn’t play the trade-off game, instead emphasising that the bank had the capabilities to handle the financial problem and maintain price stability.
We believe that the Fed will not pursue such a strategy now because there is just too much danger, but managing inflation is a vital goal for them.
We think that even if the Fed adopts an aggressive strategy to raising interest rates, it is quite likely that the Fed will announce a dovish posture from now on.
Such a situation would be beneficial to the US stock market, and the long-awaited bull run may finally commence. After all, market participants are hooked to loose monetary policy, and the fragrance of free money sends them soaring.
Gold
Today will see further volatility in the precious metal. The price activity over the last two days has been poor, but keep in mind that the price is already flirting with its all-time high. As a result, it is very logical for traders to take some profit following such a spectacular gain.
For the time being, everything is reliant on how the Fed plays its monetary cards. A hawkish position by them is expected to strengthen the dollar index, which might spark a sell-off as the dollar index gains traction. But, after the first jerk response, the gold price may rise since traders do not want to hear the Fed being aggressive with its monetary policies. This is because it introduces more danger into the system, which everyone is attempting to avoid.
A dovish Fed might boost gold prices if the dollar index continues to suffer. Overall, we feel that the path of least resistance for gold prices is more skewed to the upside than to the downside, given the momentum in gold prices.
Bitcoin
The ancient crypto king has received a lot of attention this month as a result of the US and European financial crises. It has reclaimed its status as a safe haven asset while simultaneously demonstrating the very essence of its existence, which is that controlled money via centralised monetary policy is a formula for catastrophe in the contemporary day. This is because banks invent them out of thin air and rely on them to restore trust. This aspect, confidence, has become a scarce commodity, and traders and investors are doubting every legislative action.
Technically, the price is still hesitant to test the 30K price level, but if this level is broken, we are likely to enter a true bullish phase, and talk will begin that the bottom has been reached, Bitcoin’s price has doubled in a matter of minutes, and it is time for FOMO.
