Markets Today – Hong Kong Covid, Oil, Gold, Bitcoin

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Equity markets look a little flat on Thursday, perhaps a sign that we’ve entered into a waiting period ahead of some major data releases and central bank meetings.

This month was always effectively split into two dominant weeks, the first of the month which included the jobs report that proved extremely impactful. And then next week when we get a flurry of interest rate decisions and some big data releases. This week was always going to be the void in the middle and that’s how it’s largely played out, with the ripple effects from Friday’s jobs data continuing to dictate sentiment.

Of course, developments in China have a big role to play, although as we’re seeing once again, Covid-related moves are almost exclusively impacting stocks in domestic markets. We can see that again overnight, with reports of looser mask and isolation requirements in Hong Kong lifting the Hang Seng and making it the clear outperformer in the region, while most other indices tread water. ​

There is, of course, US PPI to come tomorrow which could give investors a welcome boost ahead of the main event next week. That said, while probably indicating lower price pressures in the pipeline, it doesn’t alleviate the concerns thrown up by the jobs report last week of strong wage growth and the threat of entrenched inflation. So it will be interesting to see how investors react to the PPI report, coming so close to next weeks CPI release and Fed decision.

A floor in oil prices?

Oil prices remain under pressure as traders continue to price in a slower global economy next year and the prospect of deeper recessions. China’s efforts to reduce restrictions are probably preventing a much steeper decline in the oil price, although this won’t be without disruption as Covid spreads like wildfire throughout the country after such a long period of zero-Covid measures.

Then there’s also the pledge by the White House to restock the SPR once oil falls to around $70 a barrel, only a couple of dollars below where it is now, which could in theory put even a temporary floor under the price considering how much it’s been drawn down this year.

Gold awaiting the Fed meeting

Gold appears to be steadying ahead of the inflation data from the US and, of course, the Fed meeting next week. The jobs report was a setback and one that could stand in the way of another break higher before the Fed meeting. The inflation data tomorrow and on Wednesday could given the yellow metal a boost but it’s the fear of entrenched inflation that could nudge the terminal rate higher. Investors will want to hear what the Fed has to say on the nasty wages surprise last week.

No making up for lost time

With risk appetite not improved, bitcoin continues to trade below $17,000 and await upcoming data. The headlines haven’t been favourable recently although the FTX fallout has cooled somewhat. Unfortunately for bitcoin, the timing means it never participated in the last risk rebound and there isn’t much appetite to make up for lost time.