It hasn’t been the most thrilling start to the week but that didn’t stop investors from piling back into stocks on Monday in the hope that January data prove to be an anomaly.
That enthusiasm didn’t flow through to Asia overnight where indices are a mix of tiny losses and gains, and Europe looks poised to open in a similar fashion. In reality, the bumper start yesterday was simply a process of unwinding the losses from late last week which further suggests investors are in no mood to be discouraged.
While bond markets have pivoted quite considerably from pricing in peak interest rates in the near future and rate cuts later in the year to multiple more hikes, perhaps even a reversion to 50 basis points, and no cuts this year, the message doesn’t appear to have gotten through to equity markets.
That may well change if the February data continues to point to red-hot labor markets, stubborn inflation, and healthy household spending. But I expect that won’t be the case and investors may well be banking on that too. We all want to see resilience in the economy but if that leads to much higher interest rates, which are already now very high, that resilience won’t last long and hopes of a soft landing will quickly fade.
Is Profit-taking kicking in?
Bitcoin is trading a little lower today after giving up the bulk of its Monday gains late in the session. We’re still seeing strong resilience in cryptos but perhaps there’s some profit-taking kicking in after what has been a remarkable start to the year. There remains considerable resistance around $24,500-$25,500, a break of which could be a very bullish signal.