US and European futures are trading soft while traders are trying to remain optimistic after the Chinese manufacturing PMI data, which has shown some improvement today.
Today is an important day for market players as we get a fresh reading of the US ADP number, which will be released at 12:30 GMT. The number is expected to print a robust reading of 300K, and if the actual number comes anywhere near this reading, it could increase the odds of the Fed increasing the interest rate by 75 basis points rather than 50 basis points. Traders should keep an eye on the dollar index.
In addition, European traders will pay close attention to the European CPI Flash Estimates Y/Y, which is expected to print another eye-popping number, putting more pressure on the ECB to increase the interest rate. The odds are already high that the ECB will lift the interest rate by 75 basis points, but today’s number could certainly imply even one full percentage interest rate hike.
European energy prices are likely to remain in focus among traders and investors as Russia will close the Nord Stream pipeline today for three days for maintenance which will cause further disruption in the market. Traders are also keeping an eye on the EU lawmakers who have intervened as energy prices are spiralling, and they are pledging to do what it takes to bring them down. However, we believe they have very limited options, and taking any significant steps would require a great deal of deal to hash out any meaningful changes.
Things are becoming even more difficult for consumers in the UK as inflation continues to spiral. Consumers got another fresh warning of another 80% hike in energy bills from their suppliers yesterday. Higher energy prices were already causing much pain and eating into their disposable income. And now, even more increase in energy bills from October will only cause more damage to their disposable income while the BOE remains firm that the interest rates in the country are moving in one direction and one direction only, which is to the upside.
Today, we had critical economic data out of China which was only marginally better. The official manufacturing PMI number remained below the critical level of 50, but under the current circumstances, traders can use any good news they can get. The fact that the number moved from 49 to 49.4 shows an improvement for the Chinese economy for many traders, supporting the sentiment in the European trading session.
Recession risk is on traders’ minds regarding the US economy, and traders continuously monitor this risk by looking at the US credit spreads. The current corporate spread levels only indicate a chance of 25% of a deep recession, but in reality, we believe that the odds are much higher. There is more than a 60% chance of the US economy falling into recession, given the number of layoffs being announced and hawkish monetary policy, which is prone to killing economic growth.
Bitcoin is holding on to its ground, and its price is still hovering near the 20K, which shows bulls are trying their best to hold the price level. ETH’s price action has started to show more encouraging signs as the price of ETH has moved above the 50-day SMA, which means that the bulls may be ready to push the prices higher.
The precious metal is likely to remain highly volatile as traders will assess the health of the US labour market by looking at the US ADP number, and comments from the FOMC member Mester will also bring higher volatility. Gold prices are under threat, and the odds are high that we may see further weakness in the gold price in the coming days as the traders continue to factor odds of a Fed interest rate hike.