Stock futures seek new catalyst, Oil needs more demand, Bitcoin continues its downward slide

US and European stock futures are trading a bit flat while traders focus on the next big catalyst that is going to drive the price action. The past few weeks have been about the US debt, and the drama created by it has kept traders busy. In addition, most of the fascinating companies have also reported their earnings, so the tailwind that was coming from the earnings season has also stopped. Thus, the current price action has become somewhat lacklustre, and traders need a new catalyst that can shift prices to the next level.

One factor that sticks out like a sore thumb is the Fed’s monetary policy, which takes place next week. For the record, it is not only the Fed that will be announcing its monetary policy decision next week; we also have the ECB coming with its monetary policy.

When the Fed released its last minutes, many traders thought that the Fed was very much done with the rate hike cycle and that a pause was a highly likely scenario for US monetary policy. But the recent surprise reactions from the RBA and the BOC have changed the game to some extent; both of these banks weren’t expected to hike rates, but they did due to the immense inflationary pressure. The key takeaway from their decision has been that no matter what the cost, interest rates need to move higher.

The Fed is in much better condition as compared to the other central banks, and this is because they have plenty of support for their monetary policy in terms of the US labour market. The jobs market is robust and showing no signs of any significant weakness, and we believe that the Fed is going to use this particular factor to hike rates further going into the next week. But for now, next week’s event is a bit too far away for traders to focus on, so the market’s price action is very dull.

Oil prices

Wishful thinking continues among the optimist oil traders who believe that oil prices are unlikely to see more weakness. But the reality is that it is the demand equation that matters the most. Yes, OPEC is playing an important active role in the market and must never take their eyes off this important aspect. But what the world needs is more demand. Today, we have seen significant improvement in the Japanese GDP number, which itself is a good piece of news for oil demand, but when it comes to oil demand, Japan is nowhere close enough to China. Traders know that if we are going to see oil prices move higher and remain on that trajectory, then we have to see improvement in oil prices. Looking at the overinflation situation and two big monetary policy decisions that are due next week, we think that it is likely that the global economy may slow down further, and as a result, we could see some more weakness heading for oil prices.

Bitcoin prices

We are certainly far from being out of the woods. The news headlines are still very much full of the SEC's action against the crypto exchanges, which weren’t playing by the book, and crypto traders worry about the future of the crypto industry. But Bitcoin is bigger than any other crypto asset, and one thing is certain: currently, we mainly have bitcoin whales and professional institutions that are in the markets. Retail traders, who were in for the short-term gain, have been long flushed out, and they were very much responsible for the excessive volatility in the markets.

We believe bitcoin prices are still likely to remain under pressure, and current price action suggests that there are chances that the price may violate the important price support of 25K, but we may also see some bargain hunting taking place at that price point.