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Stocks search for direction

European stock markets are a bit higher this morning but lacking any serious direction following Wednesday’s pause for breath. The FTSE 100 rallied 2.57% on Tuesday, pared gains by falling 0.5% yesterday and is underperforming this morning with a slight decline. Shell dragged on the blue chips with a decline of more than 3.5% as it warned on third quarter profits due to lower refining margins. Frankfurt and Paris both firmer, just, after Asian stocks broadly rallied overnight. Sentiment remains hardly bullish – Mon/Tue a short-squeeze relief that seems to already have run out of momentum. The one to watch will be the rally that is chased higher aggressively; that is the one that will precede the big capitulation.

US volatile

Wall Street a little lighter after its best two-day rally since 2020. The 0.2% drop in the S&P 500 was modest in comparison with the blockbuster bounce of Monday and Tuesday – markets pausing as they assess the macro-economic outlook and whether central banks are about to turn tail in their inflation fight. But the S&P 500 declined as much as 1.8% at one point, highlighting the dangers facing bulls and bears alike.

Too soon?

“There is a school of thought that states it is prudent for the Fed to pause given a number of higher frequency data point to the Fed having halted, and reversed, price appreciation ... However, it seems unlikely that the Fed is going to be this forward looking.” - JPM. Atlanta Fed president Raphael Bostic said much the same: "The considerable speculation already that the Fed could begin lowering rates in 2023 if economic activity slows and the rate of inflation starts to fall; I would say: not so fast." San Francisco Fed president Mary Daly also said there was a high bar for slowing the pace of rate hikes.

Today’s data

Following the JOLTS data, and ahead of the nonfarm payrolls tomorrow, there is the weekly US unemployment claims data, as well as ECB meeting minutes and a slew of Fed speakers on the wires; plus MPC member Haskell and BoC governor Macklem.

Oil takes bullish posture

OPEC and allies went ahead with a huge 2m bpd cut to quotas – in reality this is amounts to something like 700k-1m bpd worth of actual barrels removed from the market. The White House is not happy and accused OPEC of aligning with Russia. Brent spot prices this morning just eased back a touch from the 50-day line – we await to see whether the rally out of the channel can lead to further gains. Looking for a close above the 50-day; MACD has already seen a bullish crossover.

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