Stock markets rebounded on Tuesday, with Europe and the U.S. posting gains of more than 1%, while the NASDAQ Composite led the way, up more than 1.5%.
We may be seeing investors testing the water after the recent sell-off, with levels potentially looking more attractive following a decent pullback. The Nasdaq wasn't far from 10% off its highs, while the S&P 500 and Dow Jones Industrial Average were a little over 5%. I'm not sure the markets have hit a low, but it will be interesting to see what kind of traction the rebound gets.
Ultimately, the long list of downside risks for the economy hasn't got any smaller, and central banks don't appear any less determined to pare back pandemic stimulus measures. Evergrande is a long way from being contained, quite the opposite, in fact. Trading remains suspended on Evergrande's shares, while other developers are now falling victim to the crunch.
This is only starting to unravel, and while there is clearly a massive effort occurring in the background to raise funds to repay investors and keep projects moving, there is an enormous amount of damage limitation still to do.
It will be interesting to see just how much appetite investors have for this rebound, given how much uncertainty remains. The energy crisis is not getting better and the decision by OPEC+ not to relieve the pressure on oil prices won't help that. Are investors really willing to ignore all of this and more when central banks are pulling back amidst higher inflation?
The test of this won't be today's move, but the ability to extend it to the end of the week and make up significant lost ground. We'll know soon enough if investors are back on board or not. I suspect nerves are still there under the surface and it won't take much to knock them once more.
Oil Surge Continues As OPEC+ Plays Waiting Game
Oil prices are continuing to tear higher after OPEC+ passed up the opportunity to take some heat out of the market. The group is clearly concerned about the potential hit to demand in the coming months if COVID wreaks havoc once more and restrictions are reimposed and, therefore, opted to maintain planned increases of 400,000 barrels per day, each month for now.
With Saudi Aramco (SE:2222) highlighting the increase in demand as a result of the energy crisis, amounting to around 500,000 barrels per day, prices were only going to go one way. And now it's a question of what the group is willing to tolerate – $90, $100? We can't rely on U.S. shale to fill the void, it seems, with the industry focused on debt reduction and returning cash to shareholders.
Gold The New (Old) Safe Haven?
Gold performed well at the start of the week, in what appeared a blast from the past, with the yellow metals safe-haven qualities being favoured. While the dollar has typically performed well in these circumstances, which has actually been a drag on gold, it would appear investors are having a change of heart.
Perhaps the threat of rising inflation is forcing a rethink, with central banks seemingly intent on removing stimulus measures despite recoveries slowing and economic risks rising. Or, is it the debt ceiling that's driving the change of heart and the (highly unlikely) prospect of default weighing on the dollars safe haven qualities?
With risk appetite improving today, gold quickly gave back Monday's gains to trade back around $1,760. It will be interesting to see whether gold remains a safe-haven favourite once the debt ceiling is inevitably raised.
Bitcoin Eyeing Record Highs?
Bitcoin overcame another major hurdle on Tuesday, breaking back above $50,000 for the first time in almost a month. Once again, the cryptocurrency looked on the verge of correction, it arguably entered into one, but bulls showed incredible resilience to hold support around $40,000 and are now being rewarded. Suddenly, all-time highs don't look too far away.