Stocks limping as global economic concerns

16 May, 2016

Risk was off the menu first thing this morning in the last day of what has been a rather volatile week for the global equity markets. Although stocks on Wall Street managed to regain their poise slightly late in the day on Thursday to close mixed, global stock index futures slid along with Asian shares overnight. At the start of the European session, there was little desire for the bullish traders to step back in as they watched oil prices retreat following a three-day rally and safe haven gold and yen both rallied. However, stocks and oil prices did manage to bounce off their lows and by midday in London and the indices had erased a large chunk of their earlier losses. Preventing the sellers to come out in force so far is the still ultra-loose central bank policy with a rate rise in the US looking increasingly unlikely for this year. The ECB meanwhile is preparing to start snapping up corporate bonds as it expands its QE stimulus programme. The Bank of Japan has also hinted at intervening should the yen appreciate further. So, were it not for the on-going central bank support, equities may well be a lot lower especially with earnings being so poor in the first quarter of this year.

But it remains to be seen how the markets will behave once US investors come into play later in the afternoon – will we see a much-needed sharp recovery, or further withdrawal of bids? Worryingly, outflows from global equities have hit nearly $90 billion this year already. As the FT reported in this article, citing data from EPFR, investors pulled another $7.4 billion from global funds for the fifth consecutive week of redemptions. Over the past five weeks, some $44 billion have been taken out of the markets, which represents a five-year high. At the same time, inflows into haven assets precious metals have been rising. Clearly, this is not good news for the struggling stock markets.

Global growth concerns are rising

Chief among investors’ worries is the apparent slowdown in global economic activity with the latest Eurozone first quarter GDP estimate being revised down to 0.5% from 0.6% previously. At the start of this week, concerns about China were revived as the latest trade figures revealed that exports fell in dollar terms by 1.8 per cent while imports slumped by a much larger 10.9% to leave a trade surplus of $45.6 billion. This ended a recent run of positive data releases from the world’s second largest economy. China will be at it again at the weekend with the latest industrial production, fixed asset investment and retail sales data all due for release on Saturday. Another poor set of figures could potentially lead to a sharp drop when trading gets underway on Monday of next week.

Meanwhile the persistently soft US data of late means investors are growing worried about the health of the world’s largest economy, too. On Thursday, for example, we saw the weekly unemployment claims rose by a surprisingly large 20 thousand applications to 294,000 when an increase of a few thousand was expected from the prior week’s 274,000 total. Over the last three weeks, jobless claims have been steadily rising after dropping to record lows recently. With last month’s nonfarm payrolls data also pointing to a more subdued employment growth, the labour market recovery may well be losing steam.

Worryingly for the US economy, the vast majority of recent macroeconomic data have been below expectations while company earnings from the retail sector have also been disappointing, raising concerns about the level of consumer spending. Consequently, Friday’s April retail sales data may well miss the already-downbeat expectations of a 0.3% month-over-month fall. Core retail sales, which exclude automobiles, are however expected to have risen by 0.6% in April. But in our view, this also looks optimistic. Friday’s other key US data is the closely-watched Consumer Sentiment Index from the University of Michigan. Given the recent soft patch in US data, we wouldn’t be surprised if the respondents were feeling relatively downbeat about the level of current and future economic conditions when the survey was carried out. As such, the UoM’s Consumer Sentiment Index may drop below the prior reading of 89.0 and weigh on the US dollar.

Plenty of UK earnings, global data next week

Looking ahead, next week’s economic calendar is light for equity market participants as not all of the macro pointers will move the stock markets. But for FX traders, there will be lots of data to consider, including, for example, UK CPI and wage data and Australian employment figures. However, there will be a few relevant macro pointers for the stock markets, too. As mentioned, China’s industrial data at the weekend will be among the most important in this regard. The latest US CPI measure of inflation (on Tuesday) and the Fed’s last policy meeting minutes (o Wednesday) may cause investors to alter their rate hike expectations significantly. If so, this could have implications for not only the dollar but the stock markets, too. The weekly US crude inventories data (on Wednesday) is also becoming increasingly important for the stock markets due to its correlation with oil prices. In addition to economic data, there will be plenty of corporate earnings news to consider, mainly from the UK, with the key ones listed below.

Source link  
Gold surges to major $1250 resistance as uncertainty prevails

Gold surged Thursday on a breakout of its previous consolidation to hit and slightly exceed major technical resistance at $1250, a level not seen since early November...

Gold remains vulnerable amid hawkish Fed, strong dollar, equity highs

Gold has climbed sharply since the beginning of the year as the US dollar has pulled back from its late-2016 highs and the US Federal Reserve has exercised characteristic restraint in raising interest rates further after the last rate hike in December...

Gold well-supported on safe-haven flows, lagging dollar

Increasing political and economic uncertainties under the new Trump Administration, coupled with a sliding US dollar since the beginning of the year, have led to a sharp rise in gold prices for more than a month...

Gold pressured as dollar and equities remain supported

As the US dollar found some new life on Thursday and US equity markets hovered right around their new all-time highs, gold extended its recent pullback well below the $1200 handle. Since late December, the price of gold had been in a sharp relief rally from its 10-month lows around $1125 support...

Crude oil maintains bullish trend

Oil prices were initially weaker at the start of the new week, but they have now recovered to trade almost flat at the time of this writing. At the weekend, the OPEC and some producers outside of the group met to discuss the progress of their oil production deal...

Trump press conference fails to deter equity bulls

President-Elect Donald Trump spoke on Wednesday morning at his first formal press conference since the November elections, and the markets were all ears. Trump covered a lot of ground with multiple topics that included...

Gold ripe for potential relief rally

The charts tell a clear story of the unrelenting plunge in gold prices since early November. This steep dive has been the result of several related factors, all of which have the potential to extend well into the new year. These largely Trump-driven factors include...

Could EUR/USD finally break 1.05 on this FOMC day?

The market is demanding a rate rise and the Fed better deliver it today, for if it doesn’t the bank’s credibly will be severely damaged. There is really no excuse not to do so. Economic data has been improving, financial markets are calm...

Mixed Jobs Report Keeps High Fed Expectations Intact

As we noted the day before Friday’s US jobs report, only a significantly worse-than-expected reading for November would have likely made the Federal Reserve’s next interest rate decision more difficult...

In the past 24 hours Bitcoin has gained 1.84% and reached $3724.83784847. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has gained 1.5351% and is now at $1.1563. Start trading and making money on Forex today.

In the past 7 days Ethereum has lost -1.1% and is now at $124.721044505. Have the most popular cryptocurrencies compared online 24/7.

Top Brokers offering Forex Market Analysis

Forex Currencies Forecasts

Top 10 Forex Brokers 2019

# Broker Review
5FIBO GroupFIBO Group83%
10FP MarketsFP Markets69%