Equity markets are mostly trading in the red on Tuesday amid a period of uncertainty for the economy and interest rates.
Most, if not all, major central banks have all but declared an end to their tightening cycles in recent weeks following a very aggressive process of rate hikes over the last couple of years. But rather than be buoyed at the prospect of no further hikes, investors are apprehensive, even a little fearful.
There could be a number of reasons behind this. For one, most including the Fed and the ECB are insisting that rates will remain higher for longer, which doesn't inspire much confidence in the growth trajectories of their economies.
In the case of the Fed, policymakers have also been on a hawkish PR campaign, talking up the prospects of another rate hike to combat the extremely resilient economy that threatens to jeopardize the central bank's goal of returning inflation sustainably to target.
Meanwhile, the data from Europe is far from resilient, rather indicative of an impending recession. Far from the kind of conditions that investors want to see when inflation remains far too high. The bullish case for equities relies on inflation falling aggressively in the coming months which would allow the topic of rate cuts to take place and shield Europe from recession and the US from further hikes.
Oil pares gains in risk-averse trade
Risk aversion in markets may be weighing on oil prices a little, especially if economic fears are fueling that sentiment. Oil prices have rallied strongly on the back of supply restrictions and the economy failing to live up to expectations was always going to be one of the primary counter-risks for the price. I wouldn't say that is now unfolding but clearly, investors are a little concerned about whether the economy can sustain current levels of interest rates for a prolonged period of time.
From a technical perspective, I'm not seeing anything particularly concerning about the recent pullback. Brent crude still looks well supported, with today's initial declines being short-lived as the market rebounded around the highs from earlier this month. We may still see more of a correction but there's no clear sign of sentiment turning bearish after such a strong rally over the summer.
Gold looking vulnerable after a month of range-bound trade
Gold appears to have fallen into a range over the last month between $1,900 and $1,950, with the risks arguably tilted slightly to the downside considering the hawkish narrative the Fed is pushing.
A move below $1,900 could be a very bearish move, at which point the August lows would be very interesting not too far away. Of course, we could simply see further consolidation and we have seen some support today around $1,900 but it's certainly looking vulnerable.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.