A rollercoaster start to the week and one that seemingly tells us so much about the markets right now.
On the one hand, there is a growing list of things to be concerned about as we move into the final quarter of the year. Evergrande has been front and centre in recent days as the market tries to determine if we're facing another Lehman moment, a massive bailout or something more creative.
Considering how markets are bouncing back today, the view in the markets suggests it's not the former, although it certainly made for interesting reading on Monday. Of course, markets aren't always right, we don't have to look too hard to find examples of that. But it does say something about investors mentality in these unusual times.
It seems investors are going to be left to sweat on the outcome of the Evergrande saga. A bailout seemingly goes against everything the Chinese leadership has been striving for. A collapse would be a bold move that could have severe ramifications, for those responsible and those not.
The ripple effects could be huge, not to mention the hit to the property market and the broader economy. This is why option three looks the most likely at this point. What form it will take and when it will come is harder to predict.
And this is only one of many risks that investors are contending with at the moment. Part of what has made them so nervous in the first place is the event taking place today and tomorrow, the Federal Reserve monetary policy meeting. A misstep from the central bank tomorrow could have a greater impact than what we've seen in recent days.
The likelihood is that Jerome Powell is going to explain that the plan is still to taper this year but it's going to be accompanied by so many dovish caveats that investors will remain on board. The central bank buys itself a couple more months while leaving the door open to changing course if the situation warrants it. A sensible approach, all things considered.
Of course, the Fed is one of the numerous central banks meeting this week, many of which are also considering their exit strategies in the face of strong economic recoveries, high inflation and numerous headwinds. Without the potential benefit of persistently low inflation - most still expect it to be much lower over the next couple of years - central banks may have a real job on their hands steering us out of this crisis. That may be what investors are most fearful of.
Oil slips for third day
Oil prices are pulling back for a third day, despite market sentiment improving more broadly. Crude prices came close to their summer peaks before profit-taking kicked in and with operations coming back online in the Gulf of Mexico, it seems the market has entered into a corrective period.
That said, WTI is already seeing some support around $70, where it finally broke above last week after multiple attempts. This was the first big test below and so far it's holding up quite well. A move below here could see attention move back to $67-68 where it found support early in September.
We may also be seeing some knock-on effects from the Evergrande story weighing on crude, with China being the world's largest importer and the property firm being a growth risk. It will be interesting to see if that continues in the coming days, should the situation continue to deteriorate.
Gold not acting like much of a safe haven
Gold has been an interesting one to watch in recent days. On the one hand, it's a traditional safe haven. On the other, it sold off heavily on Thursday and even now, has only recouped half of those losses. Not perfect safe haven behaviour if investors are as concerned about Evergrande as has been suggested.
The yellow metal remains in an uncomfortable spot and, ultimately, it's the Fed that holds the key. A dovish Fed sees gold welcomed back with open arms. The opposite could see it head back towards $1,750 and perhaps even below. Something in between could see consolidation continue around $1,800 once more.
Bitcoin in correction mode?
Bitcoin isn't acting like much of a safe haven either, sliding at the start of the week before finding some support just above $40,000. This may have seen bitcoin move into a correction phase, with recent support appearing to have finally given way.
A break below $40,000 could see the move accelerate to the downside, with the first big test coming around $36,000-37,000. Below that, the support region between May and July comes back into focus. Maybe we'll hear more from every crypto-enthusiasts pal, Elon Musk soon.
One thing is clear, El Salvador President Nayib Bukele doesn't quite have the influence of the Tesla CEO. Bukele has gone from bitcoin advocate to speculator and advisor, with the backing of the country's limited funds, bizarrely claiming that "They can never beat you if you buy the dips", "Presidential advice". What can possibly go wrong?
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.