Sentiment slip in Europe

Craig Earlham

European stock markets fell again on Wednesday, but US futures were more mixed, similar to what was seen in Asia last night. In the aftermath of last week’s Jackson Hole, the situation remains precarious.

There is a clear lack of confidence in the market following many hawkish central bank comments. The past few daysInvestors want to believe that US inflation has peaked and is declining, and that a soft landing is possible. It doesn’t always match what we hear.

Add to that the increasingly hawkish rhetoric of other central banks amid severe economic headwinds, and the reality of the situation seems to be hard to ignore.

With 75 basis points of rate hikes slated for next month in the US, EU, UK and elsewhere, it may come as no surprise that investors are taking a more cautious stance.

ECB to pay the price

Wednesday morning’s Eurozone inflation data does not detract from the possibility of a 75 basis point rate hike. That’s for sure.

Bloc inflation rose 9.1% in August, up from a record high of 8.9% in July. Core inflation has also surged from 4% to 4.3%, putting serious pressure on the ECB to be more aggressive.

The central bank has paid a price for its decision to keep the deposit rate at -0.5% and as a result may have to take stronger policy now.

Price pressures are more widespread, with inflation in food, alcohol and tobacco accelerating to 10.6%, although energy price increases have eased slightly. Unfortunately, given what happens to energy this winter, the inflation picture will get worse before it gets better, or possibly even worse.

gas flow stopped

Gas flow through Nord Stream 1 has been suspended for a three day maintenance period.

Europe is keen to highlight that storage levels are well ahead of schedule, but a failure of flows to resume on Saturday would be a major blow before an already nervous and expensive winter.

European gas prices are close to recent highs and could remain so for the next few days until flows resume. Otherwise, the price may increase further.

under the oil edge

Oil prices are slightly lower again on the second day after surging early in the week. It expresses a little of the atmosphere of rest of the market and lack of certainty.

Prices surged earlier in the week as traders weighed possible supply disruptions from Libya and Iraq, but the threat of production cuts from Saudi Arabia continued to echo.

They have since pulled out amid reports that next week’s OPEC+ production cut is not on the table and broader risk markets are heading south. Economic concerns remain and trade may remain volatile.

The API also reported a modest increase in stocks on Tuesday, but expects a modest draw from EIA later on Wednesday. Considering previous comments from Saudi Arabia, it may be difficult to get much lower than $100.

drop of gold

Gold is falling again on Wednesday, this time helped by the rising dollar again. Traders are growing more confident that the Fed will raise rates by 75bp next month despite improving inflation data.

This message is finally getting through from the Fed, and it needs to be delivered now, given the lack of another significant improvement in August and/or signs of slackening in the labor market. maybe.

We have worked very hard to convince traders that aggressive tightening must continue and that tightening by 50bp would seriously undermine confidence in that communication and guidance.

Policy makers are in a pinch and they may have to do it now. Since $1,730 broke, the focus is on him at $1,700 and he’s back at $1,680.

Can Bitcoin hold on longer?

Risk assets are struggling in the aftermath of Powell’s speech at Jackson Hole. The only exception is Bitcoin. In fact, on Wednesday he posted a gain of over 1%, bucking trends seen elsewhere, with risk assets generally underperforming.

Again, Bitcoin’s resilience is around $20,000. The question is how long can it hold up if sentiment doesn’t improve?


Craig Erlam is a Senior Market Analyst for the UK and EMEA. Oanda

Opinions are those of the author and not necessarily those of OANDA Global Corporation or its affiliates, subsidiaries, officers or directors. Leveraged trading is risky and not suitable for everyone. Losses can exceed investment.

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