Markets stabilise following two days of selling

June 29, 2016

Equity markets embraced the first rebound on Tuesday after two days of selling. The FTSE 100 and DAX indices both opened higher, finishing the day with 2.64% and 1.93% gains respectively. Sterling has also rebounded mildly from a 30-year-low. Is this a good ‘buy’ opportunity, or a chance to double the shorts? The market has good reason to go either way from here.

Market sentiment is improving, as we see the perceived safe-haven assets of gold, US treasuries and JPY retracing from their recent highs. Global central banks have pledged to inject liquidity in anticipation of potential market turmoil, which could help to mitigate the severity of any immediate global systematic risk.

More importantly, the market is expecting a near-to-zero percent chance of a rate hike by the US Federal Reserve in the third quarter this year. The implied probability of the Fed reversing last December’s quarter-point interest rate hike has risen to 20%.

However, we should also be aware that the uncertainty surrounding Britain’s relationship with the EU is likely to persist for months. This is - and will continue to be - the key event that may trigger more volatility in the near future.

The Chinese market has been very resilient against the Brexit turmoil over the last three days, although the CNH has dropped to its lowest level against USD since January. In fact, the Shanghai Composite is now traded at a level higher than before the Brexit vote.  

Crude oil prices advanced on Tuesday after slumping for two days. WTI crude is traded at around $48.14 this morning. A weaker dollar has also played a role in fuelling higher oil prices. The immediate support and resistance levels for WTI crude are at $45.60 and $50.20 respectively.

The gold price has entered into a second day of consolidation due to less demand for safety. The immediate support and resistance levels are at $$1,286 and $$1,343 respectively.

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