A chaotic day

It promises to be a chaotic day in financial markets and they're currently positioned cautiously in anticipation of what's to come.

There's no doubt that investors have one eye on the Fed decision later in the day, as they have all week. It's not just about the rate hike itself, which will almost certainly be 25 basis points according to markets, but the signal the central bank sends about what lies ahead given the progress made in the economic data in recent months.

There is growing evidence that rate hikes have worked in cooling the economy, inflation, and the labour market, but the question is whether the Fed believes it has done so enough, particularly on the core measure where inflation could prove more stubborn.

We'll get plenty more data ahead of the decision including ADP employment change - which attempts to be a precursor to the NFP number on Friday - the ISM and final manufacturing PMIs, JOLTS job openings, and more. No doubt it's shaping up to be a lively session throughout.

Inflation data creates argument for doves and hawks

The ECB decision tomorrow looks highly likely to be a 50 basis point hike but what comes after is up for some debate. Inflation in the euro area slowed again last month and once more by a greater amount than expected which will offer some comfort to investors and policymakers, alike. And probably stimulate further debate on how much further rates will have to rise.

Unfortunately, core inflation is not following a similar trend, rather it remained at a high of 5.2% despite expectations of a modest decline. Energy remains a big driver of movements in the headline reading while the lack of progress in the core suggests there remains a large degree of potentially stubborn inflation that some policymakers will be very wary of. The decision making isn't going to get any easier for the ECB just yet.

Oil choppy as OPEC+ leans towards sticking

Oil prices are higher a little again on Wednesday, as choppy trade continues. With OPEC+ set to stick to current output targets, according to reports, focus will remain on demand and whether the global economy can achieve a more modest slowdown than feared in a very challenging environment.

The Chinese Covid transition also remains key with early data suggesting it's been quite smooth so far and the recovery could be stronger than expected. That said, the Caixin manufacturing PMI overnight suggested not all firms share that optimism, which could complicate things over the coming months. A strong rebound will obviously be a significant upside risk for crude prices which were weighed on last year during outbreaks and restrictions.

Sitting in a range ahead of the Fed

Gold saw strong support around $1,900 on Tuesday and even ended the session slightly in the green, highlighting the hope among traders for something of a dovish pivot from the Fed. It now trades in the $1,900-1,950 range established over the last week or two, with traders awaiting the next catalyst, which could come later today. There may be some expectation that the Fed will dig its heels in a little, despite the improvement in the data, and it could therefore take something quite hawkish to disrupt the rally in gold.

Will the Fed propel cryptos higher?

Bitcoin has benefited more than most from the increased optimism in the markets since the turn of the year. What's more, it's held onto those gains in choppier trade quite impressively. Now it's a question of whether that can be sustained if the Fed sticks to the hawkish script, or how aggressively it's propelled higher if the "pivot" does come. ​