Stock markets off to a bright start on Monday, bouncing back well after Friday's downbeat end to the week.
There was an abundance of event risk last week and rather than inspire, it seemed to push investors to the sidelines and it never really took off. Friday was a bit of a negative way to wrap things up but looking back, it wasn't really an accurate reflection of how events unfolded. Perhaps month end had a hand to play in that.
Earnings are still very strong, despite the downside risks to the outlook for many companies and the Fed was very balanced which should keep a taper tantrum at bay. Risks naturally remain, not least the impact that delta will have on the various populations, behaviour and restrictions but there's plenty of cause for optimism going into year-end.
The introduction of a $1 trillion infrastructure bill into the Senate may be giving sentiment a bit of a bump at the start of the week. There is still some way to go but this was an important step towards some much needed investment.
A mixed bag of PMI data
The PMIs we've seen from around the globe on Monday highlight the collective challenges facing manufacturers but also the vast differences between countries as a result of vaccine rollouts. The common complaint is unsurprisingly on the supply side which is causing higher input costs, much to the unease of central banks that are seeing higher inflation as a result. Although the widely held belief is that it is temporary and will relieve itself once supply shortages are overcome.
Covid remains a massive downside risk for many countries, especially those with very low vaccine rates and that's likely to continue to weigh heavily going foward as the delta variant spreads rapidly. Regional differences in the vaccine distribution is going to create big disparities between the economic recoveries we see, with major developed nations seeing the greatest benefits this year and next.
Oil lower after China PMIs
Oil prices have slipped more than 1% on Monday on the back of the weaker than expected Chinese PMI readings. A slowdown in the world's second largest economy would be a big blow for the region at a time when numerous countries are struggling to get to grips with the latest Covid wave.
Prices have recovered some of their earlier losses and remain not far off their highs. Part of today's declines may simply be a fact of timing, with the Chinese data coming at a time when you would expect to see some profit taking kicking in. The numbers from Europe are very encouraging and similarly strong data is expected from the US.
So despite the PMIs coming from China and other parts of Asia, oil prices are likely to remain well supported going into the end of the year. The major risks to this are a new vaccine-resistant variant and US supply ramping up dramatically as a result of these higher prices.
Gold slips but remains technically bullish
Gold prices have slipped back towards where they traded for most of July. This is despite US yields and the dollar slipping back a little which makes me think this move is more technically driven, than being a more bearish signal.
The yellow metal ran into resistance just above $1,830, around the same area it struggled a couple of weeks earlier. As long as it holds above $1,790, the outlook looks favourable. A move above that resistance zone could give the yellow metal a bit of a kick, with $1,850 then being key above here.
Bitcoin corrects after breaking key resistance
It seems we're seeing some profit taking in bitcoin after the crypto broke $41,000 - a level it's struggled with since late May. A move above here could have been the catalyst for one of those turbo-charged rallies we've seen so often before but instead we're seeing a more patient approach.
Prices have cooled over the weekend and today and we find ourselves back below $40,000. The price saw support around $38,300 on Friday so that will be the first test if it continues to fall. I will be surprised to see this pullback gather any signficiant momentum though. Price action has turned a lot more bullish in recent weeks, this is just looking like a small corrective move.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.