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European stocks continued their recovery on Tuesday, although that momentum was lost heading into the close as they gave back a portion of their gains.
The US, meanwhile, is seeing large losses on the back of a couple of days of yields rising and some disappointing economic data. The CB consumer confidence reading was a blow, with the expectations component suffering a particularly large drop which doesn't bode well given how resilient spending has been until now.
While the labour market remains in a very good position, areas of weakness are appearing in the economy – such as the property market – and perhaps consumer spending will be next. This would be a massive setback and potentially the strongest signal yet that the US is heading for a recession.
Stocks had been given a boost earlier by a relaxing of quarantine restrictions in China that may be the first move towards a softening of its zero-Covid policy. Perhaps investors are getting carried away with a very modest easing of restrictions but the policy is a big potential headwind for the global economy so any loosening will be celebrated.
Of course, these are extremely anxious times in the markets so the celebrations didn't last very long. And that will be even more evident from tomorrow when the economic data ramps up and we hear from the heads of the Fed, ECB and BoE at the Forum on Central Banking in Portugal.
Oil rallies as OPEC+ fall further short of targets
The easing of China's zero-Covid policy helped oil to the third day of gains following a decent correction in recent weeks. As did reports that the UAE and Saudi Arabia are producing near capacity, in stark contrast to claims that both are holding back and could do more.
To make matters worse, OPEC+ compliance stood at 256% in May, 2.7 million barrels per day below target taking the total shortfall under the agreement to more than half a billion. Even sanctions being lifted on Iran and Venezuela can't do much against that backdrop. It may well take a recession to return oil prices to sustainable levels any time soon.
Can the ECB Forum inject life into gold?
Gold has slipped a little this week as yields have edged higher, supporting the dollar and weighing on the yellow metal. It still hasn't moved particularly far though and very much remains rangebound. Tomorrow's central bank event in Portugal could inject some life into the gold price, having spent weeks now in a consolidation phase. Support remains at $1,800, with $1,870 key resistance to the upside.
Slipping back towards $20,000
It's been much the same in bitcoin, although I'm sure the crypto crowd will be relieved at that given the stream of negative headlines over the last couple of months. I fear more may follow in the weeks ahead and I wonder whether the community does too, given its inability to get any traction above $20,000.
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