Equity markets are treading water on Tuesday as investors take a pause following quite an eventful week.
Investors seem a little lost this week, disheartened by the jobs report, poor tech earnings, and a still-hawkish Federal Reserve. The central bank may have softened its tone a little, but once you take the economic data into consideration, the case for a couple more 25-basis point hikes is clearly there.
That’s come as quite a setback following what has been a much more optimistic start to the year, in which interest rate expectations have been broadly pared back. But as was always likely to be the case and will likely remain, this quarter at least, the data will be inconsistent, and the sentiment will reflect that.
The path to peak inflation seemed very linear and sharp, but the journey back to 2% is likely to be anything but. Clearly, there is a lot of underlying strength in the labor market that will make a case for pausing challenging, although I suspect there’ll be plenty of examples over the next couple of months that may make it seem more appealing.
A Slight Hawkish Shift From the RBA?
The RBA is on a similar trajectory to the Fed now, even a little ahead, in that it’s on a meeting-by-meeting path and has been hiking in 25 basis point increments since October. That said, based on the language overnight, it would appear the light at the end of the tunnel may be dimming, and the RBA could be laying the groundwork for a prolonged exit. Core inflation has remained stubbornly high, and while a return to super-sized hikes looks unlikely, the expectation for the next few meetings is that 25 basis point hikes are widely expected.
Tick and Tick
Bitcoin continues to look fairly strong, having weathered the recent storm quite well. It remains not far from its highs and within the range it’s traded in for most of the last few weeks. Sentiment remains a dominant facto, butt the community will likely be hoping for more than anything right now for headlines to not turn against them and for cryptos to show some resilience. So far, both of those boxes are being ticked.