Sentiment Skids in Europe – MarketPulseMarketPulse

Stock markets in Europe fell again on Wednesday while US futures are more mixed, similar to what we saw in Asia overnight. Conditions remain choppy following Jackson Hole last week.

There is clearly a lack of conviction in the markets after the many hawkish comments from central banks in recent days. The narrative investors want to believe is that inflation has peaked and is falling in the United States and a soft landing is plausible. This is not necessarily what we hear.

Add to that the increasingly hawkish language of other central banks amid severe economic headwinds and the reality of the situation becomes seemingly impossible to ignore. With 75 basis point hikes now on the table for the US, EU and UK next month, among others, it is perhaps not entirely surprising that investors are embracing a more cautious stance.

ECB pays the price for dragging its feet amid record inflation

Eurozone inflation data this morning won’t hurt the chances of a 75 basis point hike, that’s for sure. Inflation in the bloc rose to 9.1% in August from the previous record high of 8.9% in July. With core inflation also rising from 4% to 4.3%, pressure is seriously mounting on the ECB to be more aggressive. The central bank is paying the price for its decision to leave the deposit rate at -0.5% for as long as it has and may need to be much more forceful now as a result. Price pressures are broadening, with energy increases slowing slightly but food, alcohol and tobacco price inflation accelerating to 10.6%. The inflation situation will unfortunately get worse, possibly much worse, before it gets better, given the future of energy this winter.

Gas flows stopped, nervous a few days to come

Gas flows through Nord Stream One have now been interrupted during the three-day maintenance period. While Europe is keen to stress that its storage levels are well ahead of schedule, failure of flows resuming on Saturday would be a blow ahead of what is already going to be a jittery and costly winter. Gas prices in Europe are near their recent highs and will likely remain so for the next few days until flows resume. If they don’t, prices could go up a lot more.

Can bitcoin last longer?

Risky assets are in trouble following Powell’s speech in Jackson Hole, with arguably the only exception being bitcoin which fell sharply immediately after but has now regained its feet. In fact, it is posting gains of over 1% today, bucking the trend seen elsewhere, with risk assets generally underperforming. Once again we see resilience in bitcoin around $20,000; the question is how long can he hold out if the feeling doesn’t improve?

For an overview of all of today’s economic events, see our economic calendar:

This article is for general information purposes only. It is not investment advice or a solution for buying or selling securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for everyone. You could lose all your deposited funds.

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His opinions have appeared in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig is a full member of the Society of Technical Analysts and is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.

Craig Erlam
Craig Erlam

Mary I. Bruner