US and European futures are trading lower once again as traders are concerned about the prospects of the global economy falling into a recession. In addition, traders are on the edge that the IMF has started to express its views more aggressively about the reckless behaviour of lawmakers in the UK. The UK is not an emerging market where the IMF can have its say or express its view, but the continuous headlines from the IMF are sharply influencing the sentiment among traders and pushing the cost of borrowing through the roof.
Overall, traders are likely to pay close attention to the speeches by James Bullard and Jerome Powell today as Charles Evan made his position clear about the Fed’s monetary policy yesterday. The consensus is still that the Fed will continue to push the interest rate hiker, and there is no magic pill that can eliminate the current pain.
Sterling has resumed its decline once again while the IMF is putting pressure on the UK that it needs to re-evaluate its tax structure. The fact that the IMF has been involved this closely with the UK has made the matter a lot worse. The UK is not an emerging economy where the IMF can dictate its terms, but the fact that now the IMF has started to see the UK as one of the emerging economies has made the situation a lot direr.
Traders believe that an unexpected announcement is highly likely going to come from the Bank of England, and it could take place even over the weekend if not before. This is because the scheduled meeting by the BOE is actually going to be on November 3rd, and if the BOE leaves things until then to make an announcement about its monetary policy, the Sterling will be even more shredded into pieces.
With the dollar index picking a lot of steam, the situation is only becoming worse for the Sterling as the UK’s borrowing cost is surging. So far, the BOE has pushed back to accept the terms set by the market. The Governor of the Bank of England made it clear on Monday that the Bank will make a full assessment of the situation during its next meeting, and that is in November. We believe that the Bank doesn’t really have that luxury, and it can continue to push back any expectations that it wants, but that would only make the situation even worse.
A full percentage point interest rate hike is very much baked into the price, and that is the only reason alone that pushed the price of the Sterling higher from its lows that it formed earlier this week. If the BOE continues to delay its decision or underdelivers, we could see a type of blood bath for the Sterling that we may not have seen evermore. There is no doubt that the type of situation of the Bank of England right now is far from ideal because if it actually lifts the interest rate by a full percentage point, it risks tipping the UK’s housing market further into a deep recession. This means that we will see a serious correction in the UK’s market housing market, and consumers will find it incredibly difficult for themselves to pull them out.
The precious metal continues to trade under the influence of the strong dollar. The dollar index has picked up even more steam, and this is due to the reason that traders are finding the dollar the ultimate safe haven as the risk of a global recession is looming. For traders, it is clear that the Fed is not in the mood to slow the pace of interest rate hikes, and the dollar index is the safest currency among other currencies, especially when the IMF begins to dictate its views to the UK. The ongoing strength in the dollar index is pushing the price of gold lower.
Gold traders will be closely paying attention to FOMC member James Bullard’s speech today and will be making an assessment of the future path of the Fed’s monetary policy. They will also get more colour on this from Fed Chairman Jerome Powell, who will be speaking later as well. Speeches by these two individuals are highly likely to influence the price of gold as the dollar will become more volatile.
Crude and Brent oil prices continue to trade lower today while traders are keeping a close eye on oil production, which is adversely influenced by Hurricane Ian. Oil producers are pulling their workers from the production site, which enters the US Gulf of Mexico. It is important to emphasise that this particular matter is only slowing down the current sell-off in oil prices as the reality is that global growth is entering a major recession, and prospects of things becoming better for oil aren’t that promising.
The crypto king, BTC, experienced another episode of manipulation and pump and dump yesterday as the price surged during the early hours creating false hopes for a recovery in the crypto market. However, the sell-off, which was triggered later in the day as the price refused to move above the 21K resistance level, crushed all hope among BTC bulls.
Having said this, what is quite amazing in the BTC market is that while everything has been falling off a cliff during the past few days, we have seen a lot of consolidation for Bitcoin. This is surprisingly interesting as the stock market in the US—a highly correlated market with the BTC—made another low for this year; the BTC is actually holding up and is still away from its lows of the year. Traders should pay close attention to this.