It’s been quite a volatile start to the week which is unlikely to abate considering what’s to come over the next few days.
Central banks are lining up this week to deliver huge rate hikes as the desperate fight against inflation continues. The Fed headlines on Wednesday but others will follow including the BoE, SNB, SARB and the Norges Bank on Thursday.
The BoJ will also meet on Thursday but the topic of conversation there will likely be how to generate sustainable inflation, not fight it, and the spiralling yen. The CBRT meanwhile will ponder how much to cut rates again despite inflation topping 80%.
PBOC between a rock and a hard place
Benchmark lending rates in China were left unchanged overnight as the central bank continues the balancing act of supporting the economy as well as a falling currency. The one-year LPR was left unchanged at 3.65% while the five-year was also left unchanged at 4.3%. This didn’t come as a surprise after the MLF was also unchanged last week. The PBOC is truly between a rock and a hard place at the moment, made all the worse by lockdown uncertainty amid various Covid outbreaks and an ongoing zero-tolerance approach.
Oil rebounds as OPEC+ struggle again with output targets
Oil prices bounced back well at the start of the week, as choppy trading conditions were seen across various asset classes. Brent is trading back around $90 a barrel after briefly dipping back towards the lows of the last six months where we continue to see substantial support.
OPEC+ fell short of its output target by 3.583 million barrels per day in August in a further reminder to the markets of the tight conditions we continue to operate within. It also highlights how irrelevant the 100,000 barrel increase and subsequent cut really were. Still, I expect more warnings of output cuts if prices do break their six-month lows.
A troubling week for gold
It hasn’t been the best week for gold, although it did manage to find its feet a little over the last couple of sessions. Still, it could be in for a lot more turbulence this week considering the scale of tightening that’s coming on Wednesday and Thursday, alone.
If the Fed takes the plunge with a 1% hike, it could turn into a very unpleasant week for gold. It’s run into resistance around $1,680 over the last couple of sessions which makes sense from a technical perspective, being such a long-standing level of support. We may see it linger below here in the run-up to the Fed decision amid fear of a nasty rate surprise.
Will Bitcoin break the June low?
Another turbulent session for bitcoin at the start of the week in which it came close to its June low before recovering alongside other risk assets. While that may come as a relief in the short term, it may also generate some nerves as a break of that low could see it spiral lower once more. It’s not a great environment for risk assets and central banks could deliver another blow this week.