Choppy Day For Markets as Traders Look To Next Week’s FOMC

It was a scrappy sort of day for markets yesterday with traders caught between recessionary fears and China reopening optimism. US stocks were weaker, though failed to see an extension of the bearish momentum which marked the earlier part of the week. USD fell also as growth concerns linked to fears of a prolonged US tightening path hurt investor sentiment. Next week’s FOMC meeting means markets are likely to continue to struggle for direction in the run up to the event though any further positive headlines regarding any more easing of restrictions in China are likely to help boost risk assets near- term.

Key Factors for Today

- USD fell yesterday on growth fears linked to risks of a longer Fed tightening cycle
- Equities under pressure amidst recessionary fears – some optimism linked to China reopening helping offset
- EUR leads in FX as USD falls back
- BOC hikes by 50bps – signals likely pause
- Metals higher – Oil falls despite EIA drawdown news

Coming Up

- EUR – ECB’s Lagarde speaks
- USD – Unemployment claims
- NZD – Manufacturing sales

Equities Hurt By Recession Fears & Fed Outlook

Equities markets were broadly lower yesterday. While bearish action eased a little in the US, elsewhere we saw indices in the UK and Asia plunging with European assets coming under pressure too. The big fear looking ahead is that the Fed will extend the duration of its tightening campaign if inflation is seen to have bounced back a little in November. Softer data out of China this week has added to recessionary concerns. However, a slew of recent covid restrictions being eased there is raising hopes that the government is moving towards scrapping its zero covid policy. Any further such headlines are likely to lift stock prices.

EUR Leading in FX

In FX, the fall back in USD into the end of the week has allowed for other currencies to bounce back. EUR has emerged as the strongest of these today, rallying 0.4% against the Dollar. Yesterday Eurozone inflation expectations survey came in stronger than expected, suggesting there is likely to be little scope for the ECB to slow the pace of hiking near-term.

BOC Hikes & Signals A Pause

A quiet data sheet today means flows are likely to stay linked to USD movements and incoming risk headlines. The Bank of Canada came through with a further 50bps hike yesterday, taking rates to their highest level since 2008. The BOC also signalled that it will now look to assess the impact of current tightening and will weigh incoming data before any further adjustments, signalling a likely pause for now.

Metals Turn Higher – Oil Continues Lower

In the metals and commodities space, both gold and silver turned higher yesterday, benefiting from a weaker US Dollar. If the current pullback continues in USD, both metals look poised for further gains on the back of recent bullishness. Crude prices fell again yesterday, hitting their lowest levels since late 2021. Recessionary fears and Russian price cap headlines are hurting sentiment with the fall coming despite the EIA reporting a larger than expected inventories draw.