European stock markets are falling heavily again on Wednesday, reminding us all once more why we shouldn't get excited by the bear-market rallies.

There's a desperation to add substance to the, often sizeable, rallies that pop up in equity markets despite little or no rationale behind them and today is once again a lesson in why we shouldn't bother. In much the same way that "if it seems too good to be true, it probably is", if stocks are rallying for seemingly no reason, there probably isn't one. So it won't last.

On Friday I noted that triple witching days should be taken with a pinch of salt; that probably extends to the day or two after as markets readjust. And that's in normal times which this most certainly is not. Another reason not to get carried away by the trade at the start of the week, which also occurred over a US bank holiday; another possible red flag.

Last week, investors had to contend with an avalanche of monetary tightening, some expected, some certainly not. That's not so easy to just brush off, particularly in the run-up to Jerome Powell's two-day testimony in Congress. The "R" word is likely to come up a lot today and the Chairman will have a tough time dodging it, especially with mid-terms in five months. Naturally, he'll do his best to remain apolitical but I'm not sure investors will be able to ignore so much recession chat.

BoE may be slightly encouraged by inflation data

The UK public can't ignore the reality of recession either. A summer of discontent is coming as the cost-of-living crisis rears its head in the form of strike action. Day two of travel disruption begins tomorrow amid more failed negotiations earlier this week. With Brexit now behind us (ish) and mask mandates a thing of the past, it's only natural that we Brits have found the next thing to argue about this summer. How exciting.

Inflation is unfortunately a very real and significant problem though, as evidenced by the May CPI data this morning. The BoE may be slightly encouraged by the core reading which fell a little faster than expected. Energy and food continue to drive the headline reading which the central bank can't ignore but today's data may encourage them to continue on the gradual tightening path against expectations of super-sized hikes.

Are we seeing a recession being priced into oil markets?

Is oil prices getting whacked the clearest sign yet of recession fears spreading across financial markets? With equity markets, it's been a death by a thousand cuts, as inflation panic has morphed into tightening and growth fears and finally the reality of a recession. Oil market dynamics mean crude has rallied throughout this as demand has been strong and supply insufficient. Is all of that about to change?

There's been a clear shift over the last week and as far as I'm aware, there hasn't been a miraculous oil discovery that solves all of the supply issues. But there's been a far greater acceptance that a recession may be unavoidable if central banks are going to get control of inflation again. WTI is falling rapidly back towards $100 where it could see strong support.

Gold the outlier

It seems everything is making moves at the moment, everything except gold that is. The yellow metal is trading around a very familiar level - $1,840 - and showing little indication of deviating from here in any significant way. Perhaps Powell can spur it back to life. If not, the $1,800-1,870 range remains intact, as it has broadly speaking for the last six weeks.

Cryptos dotcom moment?

Bitcoin is clinging onto $20,000 for dear life, the fear being that the loss of it again could see it spiral out of control. The market environment remains very unfavourable, as have the headlines of late. I don't expect either to improve which could make life very uncomfortable in the short term.

One interesting story that has grabbed my attention today is BoE Deputy Governor Jon Cunliffe suggesting that this could be cryptos dotcom crash. The sink or swim moment which unearths the Amazon and eBays of the crypto space and rids it of the many that only exist to be the get-rich-quick vehicles many pray they will be. Crumbling prices aside, this could be a big moment for cryptocurrencies.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD has lost its bullish momentum after having climbed above 1.0570 with the initial reaction to the US data in the American session and retreated toward the mid-1.0500s. On a weekly basis, the pair remains on track to close in positive territory. 

EUR/USD News

GBP/USD struggles to hold above 1.2300

GBP/USD struggles to hold above 1.2300

GBP/USD has edged lower following a jump above 1.2300 in the early American session on Friday. The market mood remains upbeat ahead of the weekend with Wall Street's main indexes posting strong daily gains on upbeat US data. 

GBP/USD News

Gold stays below $1,830 as US yields edge higher

Gold stays below $1,830 as US yields edge higher

Gold continues to fluctuate below $1,830 on Friday and looks to close the second straight week in negative territory. Fueled by the risk-positive market environment, the benchmark 10-year US Treasury bond yield is up more than 1% on the day, limiting XAU/USD's upside.

Gold News

Why Cardano could surprise over the weekend

Why Cardano could surprise over the weekend

ADA  set to close out the week with a gain on the workday trading week and over the weekend? Central banks signaled that the rate hike cycle is ending, meaning less stress and tight conditions for trading, opening up room for some upside potential with Cardano set to pop above $0.55 and test a significant cap.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures