Headlines of resuming stress in the United States banking sector dominating attention has provided a lift to Bitcoin price action. The most well-known Cryptocurrency touched weekly highs just below $30,000 in response to uncertainty in the banking sector resurfacing. Fears regarding what impact this could have on economic momentum has encouraged a sell-off in other risk assets, such as Oil.
While banking sector uncertainty is naturally a cause for concern, what transpired during the early months of 2023 has so far appeared to be a confidence issue. An episode of history repeating itself when looking back to the events of contagion during the Global Financial Crisis is what many fear. Yet, these concerns can explain why a generally choppy investor sentiment across different assets because are playing out. Investors are waiting to see how these themes develop.
Bitcoin is still a speculative asset that is highly volatile to sudden swings by nature. Enthusiasts can look to manage risk by waiting to see if Bitcoin can successfully surpass the $30,000 handle. A clean break above $30,000 is required for enthusiasm to return to buying momentum.
There are a number of other assets that are also approaching critical areas of potential rejections in price action. Such as $2000 in Gold and 1.10 in the Eurodollar. We should still remember that $30,000 in Bitcoin has previously been a tough hurdle to jump over.
Tech earnings one bright spark for cautious investors
Upbeat earnings updates from tech giants in the United States appear to be providing the one bright spark for investors. This supported the Nasdaq while a cautious investor sentiment plays out elsewhere. The updates from Microsoft, Alphabet (Google) and Meta Platforms (Facebook) can be collectively considered as a positive for the sector when we take into account the general challenging environment surrounding the world economy.
Attention will shift to Amazon before the current trading week concludes.
An environment of high interest rates, persistent inflationary pressures, recession warnings and stresses in the banking sector weighing on sentiment are making the more upbeat statements from the tech giants less impactful.
Gold could react to upcoming US data
The upcoming GDP numbers and Initial Jobless Claims from the United States will be seen as an event risk for Gold traders.
The GDP data will take most of the attention, but investors should not sleep on the jobless claims either because signs of a downturn in the United States employment sector can act as the catalyst for Fed policymakers to turn dovish. Fed officials will be watching such data releases closely and waiting for a trend to develop.
I do still see the potential for a run above $2000 in gold price before the month is over. It will take some time for Gold to surpass $2000 with conviction. I would expect a few more re-tests and possible rejections of this psychological level in the trading sessions ahead.
The combination between a defensive financial market sentiment encouraging the appeal of safe assets, rumblings of further stresses ahead in the banking sector and the likelihood that the Fed lifted interest rates as high as it can are all seen as optimistic themes for the precious metal.
Should Gold manage to conclude monthly trading for April above $2000 buyer optimism will increase for what potential May could have in store for investors.
Focus on US GDP release
Later on Thursday attention from an economic data standpoint will focus on the United States GDP release.
Headline economic growth in the US during the first quarter of 2023 is already expected to show a slowdown when compared to the 2.6% encountered in the final quarter of 2022. What onlookers will want to monitor is whether there has been a meaningful decline in the power of the consumer following signs of stress in the domestic banking sector over the last couple of months. However, this reading has likely come too soon to provide any real clarity on this aspect.
The United States is particularly reliant on domestic consumption. It makes up a critical component of its economy and this is why factors such as drastically higher interest rates and inflationary pressures are sensitive subjects for Federal Reserve policymakers. They provide the opposite of a stimulus support to consumer spending.
Nonetheless it would likely require a drastic downside shock from the GDP data release to shift the Feds mentality away from US raising interest rates once again early May. The central bank is widely expected to pull the trigger on one more rate increase next month. This would raise rates to levels not seen since the early days of the Global Financial Crisis more than 15 years ago.