Traders hesitant as debt ceiling talks continue, IMF cautiously optimistic, more Saudi warnings

Equity markets are broadly lower on Tuesday as traders monitor debt ceiling talks in Washington, take note of new IMF forecasts, and hear fresh warnings from the Saudi Energy Minister.

Once again, it's been a relatively lively day as far as headlines are concerned and yet there's still a feeling of hesitance in the markets. We're still waiting to see a resolution on the debt ceiling, which will undoubtedly come, after more promising talks between President Biden and House Speaker McCarthy.

At the same time, we may be at a turning point on inflation and interest rates around the world but we're still waiting for data that could confirm that or at least put us on a more promising path. The next couple of months will be crucial for that.

IMF more optimistic on UK economy but warns of downside risks

The UK will now avoid a recession this year according to the IMF which revised its growth forecast from -0.3% to +0.4% on the basis of stronger household spending, higher wages and reduced post-Brexit uncertainty. The first two will also likely force the Bank of England to keep rates higher for longer, as the IMF warned, so the challenges aren't going away any time soon. But this is a welcome start given the far more pessimistic forecasts following the drama of last year.

Bailey forced to defend policy response again but comments tomorrow more important

BoE Governor Andrew Bailey was joined by colleagues to testify in front of the Treasury Select Committee once more this morning, this time on the monetary policy report. Coming so soon after the grilling on quantitative tightening, you'd be forgiven for confusing the two as the topics of debate were largely the same, with the MPC forced to defend its decision-making over the last couple of years and its credibility, by extension, now.

Ultimately, it's not what Governor Bailey or his colleagues said today that will be the key takeaway this week, but rather what he says tomorrow in his two appearances following the release of the April CPI report. This is expected to be the first sharp fall coming a year after the surge in energy prices meaning the data going forward will have favourable base effects, albeit not at the core level which will fall at a much slower pace.

Oil edges higher after fresh warnings from Saudi energy minister

Oil prices have nudged higher today following another warning from Saudi Energy Minister Prince Abdulaziz bin Salman that short-sellers will be "ouching" as they did in April. "Watch out" was the message ahead of the next OPEC+ meeting early next month in what may be a sign that the group is considering cutting output once more amid a more bleak global economic outlook.

Of course, actions speak louder than words and traders haven't been overly deterred by his words, despite the group having announced two sizeable cuts in the last year that briefly shook the markets. Crude remains below the levels of December to early March and then April, but recent momentum has been more bullish. A break of $77.50 in Brent could signal a sentiment shift in oil markets after repeated wobbled following the bank failures in the US.

Gold still seeing support around key support

Gold is relatively flat on the day but recent momentum has clearly been more bearish, with $1,960 representing a big test to the downside. We've seen it run into support around here this past week and it has been a notable level previously as well including late March and early April, as well as early February.

A break below here could be a very bearish development, with $1,940 and $1,900 then being the standout potential support zones below.

Bitcoin not seeing momentum in either direction

Bitcoin remains in consolidation, pushing a little higher on the day but not really making any progress in either direction. The recent trend is very much against it and the break of $27,000 a couple of weeks ago certainly suggests it may have entered into corrective territory but as yet, it's been very resilient. If we do see a move lower, the 12 May lows offer the first support test followed by $25,000.