The US and European stock futures are off their lows of the session, but the mood among investors and traders remains pessimistic as the threat of an economic downturn lingers. Yesterday, we saw exciting price action for the US stock markets as the stock indices plunged at the beginning of the session but then towards the market close, we saw an enormous recovery.
Today’s price action will focus on two things: firstly, the political crisis in the UK, which began yesterday with the resignation of most of Johnson’s top team members.
Secondly, traders will be looking at the FOMC Minutes, which will be released later today. The expectations are that the Fed will confirm its hawkish stance, which means more interest rate hikes and the attitude of whatever it takes to lower inflation. Jerome Powell said previously that the most considerable risk for the US is failing to restore price stability. The dollar index is the one to watch as it continues to hover near its highest level in nearly two years.
Crisis In The UK
Today will be a tough day for the Prime Minister of the United Kingdom as most of his team resigned yesterday, showing a sign of no confidence. When a vote of no confidence is called in, the Prime Minister will likely struggle. But the reality is that survival is a numbers game, and if the Prime Minister can gather more support in his corner, he may survive the biggest challenge of his political life.
As for the markets, we have more uncertainty than ever. This is because the appointment of a new cabinet could mean a set of new policies and many unanswered questions. Rishi Sunak did an excellent job during the covid crisis by keeping the UK’s economy from a complete disaster, and the public was somewhat confident in his abilities to bring the UK economy out of the current recessionary environment.
In addition, the Brexit agreement is again in jeopardy as Boris Johnson wants to walk away from some of the deals agreed with the EU about Northern Ireland, which created a trade war risk. Now with the new cabinet and his new team players, traders are more concerned about the government’s Brexit stance.
In terms of the market price action, the Sterling is recovering some of its losses today after a brutal session. Yesterday was one of the worst days for the Sterling since February this year, as the price briefly violated the support of 1.19 against the dollar. Looking at the GBP/USD price action today, it is evident that the sell-off is still not apparent, and we may see the sell-off again. But for now, traders are booking some profits, which has pushed the sterling higher today.
Brent and oil prices had a rough session yesterday as both the Brent and Crude oil prices plunged over 6% yesterday due to a major dent in oil demand. Traders are worried that the threat of recession could metalize and adversely influence the oil prices as there is too much supply on the market.
Speaking of the supply side, the Norwegian government intervened yesterday to end the strike in the energy sector that adversely influenced the oil and gas supply. The end of the strike has removed the supply threat, but the threat of a possible recession remains real, and it is more than likely to drive the price action today.
The shining metal took some serious beating yesterday as the dollar index picked up strength. Earlier today, we saw some recovery in gold prices as day traders took advantage of oversold price levels. However, with the inflation threat easing off somewhat, we may see the precious metal moving even lower from here onwards.
The dollar index, the main denominator for the gold prices, has paused its surge as traders catch their breath, but we expect the prices to move lower later today.
One crucial factor that will move the price of gold is the upcoming FOMC Minutes. The Minutes will likely show that the Fed will continue on its hawkish monetary path, which could take further life out of the gold prices.
After the major collapse in the Euro prices due to the serious threat of a recession in the Eurozone, the price action for the EUR/USD is likely to remain an interesting one today as well. The danger of a Euro-parity is more real than ever before, and many speculators believe that it is only a matter of time before we see that.