8 June, 2016
Sentiment towards the global economy was dealt a sharp blow during trading on Tuesday following the World Bank’s meek outlook on global growth which immediately dented risk appetite. The development lender slashed world GDP for 2016 down to 2.4% from the 2.9% forecast January on the back of stubbornly low commodity prices and faltering demand in advanced economies. These tepid growth outlooks come at a time when the horrible combination of mounting Brexit anxieties, ongoing China woes and depressed commodity prices have exposed most major nations to downside risks. With both the IMF and World Bank repeatedly slashing GDP forecasts, there could be a possibility that central banks unleash further accommodative monetary policy in a bid to retain stability. Although stock markets displayed a miraculous rebound during trading on Tuesday after the abrupt appreciation in oil prices that elevated global sentiment, the lingering fears over the health of the global economy could force equities to relinquish previous gains as risk aversion intensifies.
Global stocks whipsaw
Stock markets ventured noticeably higher during trading this week as the catalytic combination of fading US rate hike expectations, Dollar weakness and Oil’s resurgence encouraged bulls to attack. In Asia, shares were trading just below six week highs as concerns over global growth overshadowed the positive outlook in the energy sector. With Eurozone GDP revised to 0.6% during Q1, European equities were offered a welcome boost but could trade lower if the potential bearish contagion from Asian markets attracts sellers to attack. Although Wall Street experienced an incredible rise with the S&P 500 rising to 10 month highs, the potential fears from the World Bank outlook coupled with the weak China trade data could encourage bears to drag American stocks lower.
China trade balance disappoints
The global markets were awoken by fresh China woes in the early hours of this morning following the disappointing trade data that rekindled concerns over the health of the world’s second largest economy. China data is continuing to follow a downside trajectory and this noticeable decline in exports has reinforced the concerns over the slowing pace of economic growth. With exports in May dropping by 4.1%, this has sparked concerns that external demand may be unable to bolster growth in the world’s largest trading nation pressured China stocks. As of writing the Shanghai Composite Index was depressed with prices trading -0.12% lower as falling exports continue to heighten concerns over sluggish growth.
Brexit saga continues
With just over two weeks left until the E.U referendum vote on the 23rd of June, the Brexit saga slowly reaches a climax and this can be viewed in the Sterling that continues to spike uncontrollably across the board. The excessive levels of volatility from the mounting uncertainties and intensifying Brexit debates have left the Sterling in a very sensitive state with prices desperately searching for direction. Sharp variances in different poll results have made it increasingly difficult to pinpoint which camp is actually in the lead and this has only heightened the uncertainty further. It seems likely that the Sterling could follow a sporadic path during trading this week as major financial institutions repeatedly voice their opinions over the impact a Brexit could have on the UK, Europe, and global economy.
Investors may turn their attention towards the Manufacturing Production report for the UK economy which could offer additional clarity on how well the UK economy is faring. Manufacturing has displayed weakness in the past and if today follows the same pattern, then bearish investors could seize this opportunity to send the sensitive Sterling lower.
The GBPUSD currently trades in a minefield with 1.4500 acting as a safe zone. From a technical standpoint, prices are trading above the daily 20 SMA while the MACD is flat. Although bulls have some control above 1.4500, the uncertainty that has repeatedly haunted investor attraction towards the Sterling could provide a foundation for bears to send prices below 1.4500.
WTI Crude clips 10 months high
WTI Crude bulls were offered ample encouragement during trading this week from the persistent production distributions from major oil export nations that have sparked speculations of a drop in global supply. Ongoing disruptions in Nigeria, slight signs of a rise in global demand and a weakening Dollar have provided a foundation for bullish investors to send oil prices to fresh 10 month highs at $50.50. Although bulls can be commended on their ability to send oil prices to such shocking levels, it should be kept in mind that oversupply concerns still persist while the rising oil prices could prompt the US shale oil back into the markets, consequently sending prices lower. While the fundamentals still point to the downside, a decisive weekly close above $50 may open a path to the next relevant resistance at $54.
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