Overnight Chinese data disappointed, highlighting the prospect of more monetary support from the PBOC in the coming months. Consumers have been the engine of growth in the economy in the first months of the year, but this, as we have seen elsewhere after the pandemic, is mainly based on services.
The recovery in China is not broad-based and there are still many vulnerabilities that could fuel a targeted stimulus. Industrial production and fixed asset investment both came in well below expectations last month and there is little sign that they will get better without additional support.
Oil stable in lower range and further downside may be difficult
Oil prices rise slightly on Tuesday, but remain below the December-March range. Risks to the downside remain amid sluggish recovery in China, uncertainty around the US economy and banking system and the impact of very high interest rates on demand.
The main bullish argument for oil prices comes from OPEC+ and the prospect of another production cut in a couple of weeks, but this is also underestimated. Brent probably consolidates in the $70-$80 range for now, with further downside potentially difficult as the US seeks to pad the SPR to these levels, while OPEC+ will not hesitate to tighten prices.
Gold boosted by credit limit drama
Gold is down slightly on the day but remains above $2,000 as traders seem reluctant to give up on their hopes of hitting an all-time high. The yellow metal came close to hitting an all-time high at the beginning of the month and may make another attempt based on the events in the coming weeks.
Debt ceiling drama could support gold and prevent deeper correction. I think everyone is pretty confident that there won’t be a default, but the closer we get to the deadline, the more we’ll see those risk averse markets trading in what could support gold.
Beyond that, it all depends on interest rates and whether we get more evidence that inflation is coming down and the labor market is getting less tight. This will warrant a pause next month, and if we see significant progress on that front, we’ll start conversations about when the easing will begin.
A Deep Correction for Bitcoin?
Bitcoin seems to be consolidating near $27,000 in the near term, but downside risks remain after breaking above this notable support last week. It found support near the $26,000, but it may struggle to build significant momentum on the upside. It’s been a phenomenal run this year so an improvement would make sense. If there is a break below $26,000, $25,000 will be the next potential support level.
