Stock markets have turned negative
Stock markets have turned negative on the final trading day of the week, with Europe tracking Asia lower and US futures eyeing a similar open on Wall Street.
Whether this is the start of a late summer pullback or just a bit of profit taking following an eventful week isn't clear at this stage. It's been a funny old week of incredible earnings, downbeat outlooks for the current quarter, mixed data and a cautious Fed. The buzz around the second quarter is fading and it may well be affecting investor sentiment.
It seems most of the big tech companies that have been reliably growing at an extraordinary rate for numerous quarters are all facing issues in the coming quarters either related to supply chains, advertising, sales growth or a combination of these. It's far from a doom a gloom story but things may become a little more challenging than they have been.
Add to that the surges we're seeing in the delta variant and what that will mean for the recovery in the third quarter and there may well be a case for these markets to come off a little. I don't think it would be anything more than a small corrective move but if we are heading into a quiet month, it wouldn't come as a huge surprise.
There's still plenty to come from earnings season, with just over a quarter of the S&P 500 reporting next week. The US jobs report and a broad selection of PMI data next week, not to mention rate decisions from the Bank of England and Reserve Bank of Australia, means there's still plenty to look forward to that could give more cause for optimism.
As for today, income, sending and inflation data from the US stands out. The latter in particular as the Fed has shown a willingness to look beyond recent spikes as they view it as transitory. But as we saw on Wednesday, there are split views and with the economy recovering strongly, it may not take much for the balance to swing in favour of the hawks on the committee.
Oil easing after strong recovery
Oil prices are easing off slightly after making decent gains again on Thursday. We're seeing risk coming off the table across the board today so it's no surprise to see crude caught up in that. Oil has risen more than 12% over the last week and a half and is trading just shy of its July highs so it's understandable that we're seeing a little profit taking at the end of the week.
While sentiment has been dampened a little this week, the outlook for the recovery remains very positive so oil should remain well supported and I wouldn't be surprised to see crude prices taking a run at those July highs next week. Whether it can overcome them may depend on whether investors can bounce back quickly after today's declines.
Gold enjoying a good week but will inflation data change that？
Gold is trading flat today but it's been a good week for the yellow metal. The Fed delivered a balanced but suitably dovish performance; encouraged by the recovery but cautious heading into the coming months. That should continue to supress yields and keep gold well supported as it pushes against July's highs.
A move above here could see it eye $1,850 which will be a key barrier. The 61.8 fib level could mark a very bullish turn for gold or a potential rotation point, with the moves perhaps nothing more than the final push in a broader corrective move from the early June peak.
I say all of this ahead of today's US inflation numbers which could give gold a kick in either direction going into the close. A higher reading could trigger concerns about Fed hawks taking the upper hand and pushing for tapering earlier than is currently envisaged. Given sentiment in the market today, that could see the week end on a particularly sour note.
Bitcoin preparing to launch？
Bitcoin is back below $40,000 at the end of another eventful week for the cryptocurrency. Bitcoin is never too far from the headlines these days and even in a week like this, it's been right up there. But amid all of the excitement, it continued to stumble around $41,000, where it has struggled since late May. And the risk aversion we're seeing at the end of the week won't be helping. Although it's not significantly hindering it either.
The near-term outlook continues to look much brighter for the bitcoin price. Especially compared to the days leading up to the B Word conference when it was threatening to break $30,000 and potentially suffer heavy losses. With bitcoin now appearing to have found its floor, the question becomes where its near-term ceiling is and how long it will take to get there. It could be a really interesting few weeks for cryptos.