Too much optimism?

European stock markets are a little positive on Tuesday following another mixed session in Asia while US futures are pointing marginally lower ahead of the open on Wall Street.

It seems investors are gaining confidence amid a recovery in stock markets in recent weeks rather than feeling anxious about its sustainability against a worrying economic backdrop. I wonder how long that can last even if US inflation shows further signs of pulling back from the peak. Recessions around the world are coming and inflation is not falling fast enough. ​

Hard to see the positives in the UK data

It's no secret that the UK is facing a period of stagflation and recession and today's jobs report highlighted just how grim the situation is becoming. Despite wages rising by 5.1% including bonuses in June, real wages when adjusted for inflation fell at their fastest pace on record while job vacancies fell for the first time in a couple of years.

While the situation isn't exactly dire yet, the path of travel is clear and the energy price cap increase in a couple of months is going to deliver another economic shock to the system. The jobs report today was oddly horrible in two ways. Falling real wages will make life much harder for many but headline wage growth (not adjusted for inflation) will force the BoE to continue hiking aggressively in order to prevent a wage-price spiral.

Unemployment still remains extremely low but the BoE believes it will rise quite sharply over the next couple of years. The competitive nature of the labour market over the last couple of years may slow the process but for how long will depend on the severity of the downturn. I'm not sure the retail sales and inflation data over the next couple of days will make for easy reading either.

Indian inflation eases but another 50 basis point hike is still possible

Indian inflation fell a little faster than expected last month with a deceleration in food prices contributing to the decline. Other factors could continue to support a drop in inflation in the coming months such as declining oil prices and above-average inventories of finished goods. That said, there also remain significant upside risks into year-end and so the RBI will likely continue raising rates next month, it's just a question of how aggressive it will be. The consensus appears to be 25 basis points but 50 will no doubt be on the table.

RBA is not on a pre-set path

The RBA minutes didn't really contain any surprises, with the central bank reiterating its data-dependent stance, insisting that it is not on a pre-set path. Another 50 basis point hike is likely at the next meeting after similar moves at each of the last three meetings. With inflation expected to peak later this year, the central bank may consider moderating its hikes although that ultimately depends on how the data performs in the interim.

Two-way risk for oil as a decision on JCPOA nears?

Oil prices are sliding once more after tumbling on Monday following some woeful Chinese data. The unexpected MLF rate cut from the PBOC may have further spooked traders as it's unlikely to have any positive impact and just looked a little desperate. Throw in the country's disappointing refinery data - with output falling to 12.53 million barrels per day - and things aren't looking particularly good in the world's second-largest economy. ​

It's hard to say how much of a factor the Iran nuclear talks are as a deal looks both close and unlikely depending on who's talking. It's possible that with an agreement or not imminent, the potential for a deal is being priced in which creates two-way risk for the oil price if a final announcement does come this week. But the primary driver of the weakness, which could keep prices around $90 or lower is the threat of recession around the world and the Chinese lockdowns.

Positive signs for gold?

There's been a lot of pushback in gold early this week, with the yellow metal trading in the red for a second day. This comes amid another day of gains for the US dollar even as yields remain relatively flat. The fact that gold isn't shedding too much of its recent gains could be a positive sign over the medium term, although it would have to overcome what has become a strong barrier of resistance this past week.

Rally run its course?

Bitcoin is a little flat today after another failed run at $25,000 at the start of the week. It briefly broke above here but as has been the case for many days now, there was no momentum behind the rally so it quickly crumbled. Perhaps this is a sign that the two-month rally has run its course, at which point it's just a question of whether we're facing a correction or a test of the lows.