Global stocks traded lower on Friday as the ongoing debates between Fed policymakers over future US rate hikes sparked jitters consequently overshadowing oil’s sharp resurgence. Asian markets concluded depressed after some Federal Reserve officials suggested the idea of a US rate hike in September which repelled investors from riskier assets. European equities were punished by Asia’s bearish contagion with most major stocks drifting lower as market participants reassessed the health of the global economy. Although Wall Street was uplifted by the rebound in oil prices that provided energy companies a welcome boost, losses could be realised if the Fed debate takes centre stage.
The short term gains seen in global stocks have been undeniably impressive but go against the fundamentals which does raises questions about the sustainability of the current market rally. Concerns over the global economy still linger in the background while uncertainty remains a persistent theme which has left most investors anxious. Although speculative boosts in oil prices have somewhat elevated global sentiment, it should be kept in mind that fears over the excessive oversupply are still present. Central bank caution is still a theme in the markets and this could weigh heavily on global confidence consequently leaving stocks vulnerable to further losses. With the ingredients of a bear market still present, investors should remain alert as it could take an unexpected catalyst to rapidly halt the stock market rally.
Sterling bears are back in action
Sterling bulls were provided a lifeline this week following the string of impressive UK data which reduced some post-Brexit anxieties while also elevating sentiment towards the UK economy. Inflation figures were solid on Monday and employment data provided a pleasant surprise on Tuesday while July’s retail sales defied expectations at 1.4% consequently questioning if the impacts of a Brexit has any impact on the UK economy. While the recent data has been unquestionably encouraging, it still may be too early to gauge the ramifications of the Brexit to the UK.
Uncertainty is still a recurrent theme which continues to haunt investor attraction towards the Sterling consequently leaving prices vulnerable to heavy losses. With expectation heightened over the Bank of England implementing further stimulus to stabilise the UK economy, Sterling weakness could persist moving forward. Although the pound bulls may be installed with some inspiration in the short term if UK data continues to display signs of improvement, the thick cloud of uncertainty could ensure upside gains are capped. From a technical standpoint, although the GBP/USD broke above 1.3100, bears could reclaim back control if prices fail to stabilise above this level.
Dollar sensitivity intensifies
The Dollar was on the slippery slope this week as expectations kept changing over if the Fed will break the trend of central bank caution by raising US interest rates. Although Wednesday’s divided FOMC meeting minutes left most Dollar bullish investors empty handed, recent debates from some Fed policy makers on US rates have sparked speculations of a potential September rate increase. It seems likely that the Fed remains on standby in wait for further positive core economic data to justify raising US interest rates in December. Fluctuating US rate hike expectations could intensify Dollar sensitivity consequently creating explosive movements moving forward.
Oil enters bull market
Oil prices surged ferociously for the six straight days with Brent officially entering a bull market as expectations heightened over a potential output freeze deal in the upcoming informal September OPEC meeting. Oil sensitivity has intensified the speculative boosts in prices with bulls exploiting every opportunity provided to install repeated rounds of buying. Although the current gains are unquestionably impressive, it goes against the narrative of excessive oversupply and questions the sustainability of the current rally. With the last OPEC meeting leaving investors empty handed, there is a threat that the pending informal meeting will end without a deal laid out which could leave oil prices extremely vulnerable to heavy losses. Although sentiment remains bearish towards this commodity the technicals are pointing to the upside with bulls observing $49. While part of oil's resurgence has been hopes of a freeze deal, it should also be kept in mind that Dollar vulnerability may have played a key part.
Commodity spotlight – Gold
Gold was trapped in a wide range this week with prices meandering between $1357 and $1335 as uncertainty grew over when the Fed may raise US interest rates in 2016. This metal has always been highly sensitive to US interest rate hopes and with current expectations clouded; prices could remain in limbo moving forward. Risk aversion still lingers in the markets and such could provide a boost to prices in the medium term. With no key US economic data releases today price action and Dollar weakness could propel Gold slightly higher. From a technical standpoint, bulls must keep above $1315 to maintain the current daily bullish uptrend.
Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.