Stocks drop after US data, RBA waits, Pound test at 1.35 ahead of BOE, awaiting OPEC+ decision, Exxon invests in new wells, gold breaks above $1800, bitcoin is hovering

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The stock market rally continues on Wednesday, despite a selection of disappointing data releases in Europe and the United States.

We’ve seen a decent rebound from the January lows and it only seems to have accelerated this week, which will be a huge relief for investors after a rather turbulent start to the year. And coming at a time when so many rate hikes are now priced in for a variety of central banks, it’s possible the fear of peak tightening is behind us.

Of course, it is still possible that other measures will be taken into account, but whether this will happen in the short term or generate the same type of anxiety, it may depend on where it comes from and to what extent.

ECB unlikely to drastically change course despite high inflation

We see rising expectations for rate hikes in the Eurozone, for example, despite the central bank’s continued refusal to take such action in recent meetings. We’ve seen this happen many times and ultimately the central bank seems to follow reluctantly.

With Eurozone inflation hitting 5.1% in January, well above market expectations, will we see a similar trend at the ECB meeting tomorrow? Absent new economic projections, I think we won’t see dramatic changes tomorrow, but we could see slight adjustments in tone and language that pave the way for something more meaningful in March.

ADP sidelined as omicron wreaks havoc in January

So much is already priced into US interest rates and it’s hard to imagine the direction of travel will change in the near term, given the wide range of indicators continuing to point to higher price pressures. This is especially true of data like ADP collected for January, at a time when omicron caused significant distortions that reduce its usefulness. Expectations for Friday’s jobs report are already very low and today’s ADP could reduce them further, but that doesn’t really change the outlook for interest rates or the economy.

Triple-digit oil talk isn’t going away anytime soon

Oil prices are somewhat flat on Wednesday after OPEC+ backed plans to boost production again by 400,000 barrels in March, following some rumors that the group could increase its commitment in the face of strong demand and high prices.

While this may have been welcomed by leaders in consumer nations facing a cost of living crisis, it may have made little difference as the group falls short of its current targets. We could have seen oil prices come down a bit if the group had agreed, but as things stand there is apparently little appetite for that oil, which could continue to support the recovery. Talk of triple-digit oil isn’t going away any time soon.

The attraction of gold is fading?

Gold prices are even higher today after recovering a bit this week. The yellow metal was hit hard last week following another hawkish move by the Fed and it remains out of favor, despite some losses over the past two days.

We had seen some bullishness in gold over the past two months as investors continued to price in the need for higher rates to avoid rising inflation. Traditional hedging may remain supported by fears that inflation will remain above forecasts, as it has for some time now, but the more central banks act accordingly, the more its appeal will wane.

Profit taking at $40,000 a concern?

Bitcoin’s rebound has been encouraging over the past week, but it has so far failed to recover $40,000, which could cause some discomfort for those hoping the bottom is behind. Improving risk appetite in the broader markets is naturally supporting the price and may ultimately be what will take it through this important resistance level, as long as it holds. But we seem to be seeing some profit taking here, which is contributing to the 4% decline today.

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