US Eyeing Record Territory Again

Written by: Craig Erlam | OANDA Europe

Equity markets recovered strongly on Wednesday, buoyed by encouraging inflation data from the US that assuaged deflation fears.

Red flags had been popping up in equity markets so it was important that we saw the kind of response we were treated to yesterday. In the S&P, an outside day candle was followed by a new high for the week and a close above Tuesday's open, falling just shy of record territory in both case. The Dow also closed above Tuesday's open, falling just short of a new high for the week, while the Nasdaq ended a three day losing streak. Just what the doctor ordered.

I wouldn't necessarily say that renders the warning signs null and void but I'm sure a lot of people will be feeling much more at ease today. A new high in the Nasdaq and S&P today would undoubtedly add another layer of comfort at a time of volatility across a number of markets, not least precious metals. 

Gold slowly bounces back but scars may take time to heal

We are continuing to see a bounceback in previous metal markets, although there's still some way to go to get back to last weeks peak. Treasury yields have remained off their lows which is likely holding back prices. Not to mention the fact that earlier this week is living fresh in the memory of those that jumped on the bandwagon only to be burned when it collapsed in flames. Wounds can take a little time to heal. I remain bullish and the softer dollar that's re-emerging will only aid this, particularly if the index can drop below 92.50, which has provided strong support the last couple of weeks.

Oil climb will be gradual in Nike swoosh recovery

Oil prices are off a little today but generally holding up well around the upper end of their range. EIA reported an inventory decline in line with API on Wednesday, giving crude prices another leg higher. It wasn't enough to break out of the summer range but it does keep the pressure on. Progress from here may be a little slower as confidence in the economy continues to be repaired. 

New surges of Covid cases have so far been relatively well contained without the need for the kind of draconian measures that was widely adopted earlier this year. This will only build confidence in the ability of the economy to bounceback, that and a vaccine of course. We'll have to wait for the latter and the former will be gradual. As much as we'd all love a v-shaped recovery, we'll likely have to settle for something more resembling the Nike swoosh, not bad under the circumstances, really.

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