The week is off to a very mixed start in Asia, with Chinese purchasing managers' indexes clouding sentiment and the boost from the reopening after the lock down fading fast.

The country already faced a difficult task, to say the least, in terms of its growth target for this year, and the fact that manufacturing activity is slowing again does not bode well. Even though the surveys for the non-manufacturing sector were much better, there was also a slowdown here last month, which is another indication that the economy is struggling to get back to full strength.

One positive aspect, according to the surveys, was the improvement in supply chain conditions, which should help fight inflation around the world. Of course, it's more than just a supply chain issue right now, but every little bit helps. Central banks will be forced to raise interest rates more aggressively to counter any entrenchment of inflation.
 

The Purchasing Managers Index theme continues in Europe on Monday, with final manufacturing and service sector data due out later this morning, followed by U.S. data, where the ISM is always of particular interest.

There has been much debate over the past week about whether or not the U.S. is in a recession. Some pointed to the technical definition of two consecutive quarters of negative growth, while others pointed to the strength of the labor market and consumers. Of course, the proximity to the midterm elections has favored the debate.
 

It is unlikely that the same debate will be had if (or when) Europe slips into recession, and the polls this morning are expected to highlight overall weakness. The war in Ukraine is undoubtedly taking its toll, not to mention the constant disruption of gas supplies, which could lead to rationing this winter as countries have already pledged to cut gas consumption by 15%.
 

With purchasing managers' indices expected to contract across the EU, a recession is looking increasingly likely, exacerbated by the fact that the ECB will be forced to raise interest rates to prevent inflation from spiraling further out of control. Winter is just around the corner and it promises to be dangerous. Europe will be hoping it's not too cold.
 

Oil prices fell at the start of the week as traders eye the next OPEC+ meeting on Wednesday. With the previous agreement having expired and the group theoretically reversing all pandemic production cuts, attention will now turn to how OPEC+ will actually meet those targets and whether further increases will be announced.
 

Not many are in a position to do so, but some might be, and President Biden will be hoping that his trip to the Middle East has helped provide some kind of boost - or at least the appearance of one - that could prove important ahead of the midterm elections in a few months. A U.S. official expressed optimism last week, although reports suggest a hike is unlikely, though it will be discussed.

Gold prices are slightly lower, trimming gains after a strong rally in the second half of last week. The Fed's data-driven policy shift was the latest trigger for a decline in U.S. yields as traders scaled back expectations for future rate hikes. Meanwhile, 10-year yields are well off their highs of a few weeks ago, triggering the recent relief rally in the yellow metal.
 

I am not entirely convinced by the recent market rally as inflation remains extremely high, central banks are far from finished with their tightening measures and the recession narrative simply does not hold true. Gold may be the outlier here, as it could benefit from safe-haven flows as countries enter recession and central banks are faced with the choice of either hitting inflation targets or propping up the economy.

Bitcoin is another example of an instrument that is performing well, and yet I struggle to understand its justification. It has the appearance of a bear market rally, as we see in the stock markets, but that doesn't mean it can't go higher. Below $20,000 it has been very resilient at times as conditions have been far from ideal, which may give some confidence that the worst is behind it, but I am not convinced. There could still be some shocks in the broader markets this year, and cryptocurrencies will not be immune to them.