The mood across financial markets was fragile on Tuesday as investors kept a close eye on the troubled property giant China Evergrande Group.
Although Asian stocks closed mixed and European shares rebounded, an air of caution lingered amid worries about contagion risks associated with Evergrande. U.S stock futures pointed to recovery this afternoon, but gains may be capped if market players adopt a defensive stance ahead of the Fed meeting on Wednesday. US equity bulls already seem to be losing steam with the S&P500 and Nasdaq down over 3.6% this month. Given how US stocks remain sensitive to taper talks and rate hike expectations, the pending Fed meeting could spark some movements across the board.
OECD trims global growth forecast
Adding to the shaky sentiment, the Organisation for Economic Co-operation and Development (OECD) trimmed the global growth forecast to 5.7% for 2021 from 5.8% in May.
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The OECD warned Tuesday of an “uneven” global economic recovery and stated that “sizeable uncertainty remains”. It also lowered the growth forecast for the United States but raised the outlook for Europe. The growth forecast for the United States was slashed from 6.9% to 6.0% this year while Europe was raised by 1% to 5.3% from 4.3%.
All in all, markets offered a muted reaction to the announcement with gold lingering below $1770 and the Dollar Index trading marginally below 93.20. Investors are likely to remain on the fence ahead of the heavily anticipated Fed meeting.
Currency spotlight – GBPUSD
The past few days have not been pretty for the GBPUSD. After kissing the 100 Simple Moving Average last week, it has tumbled over 200 pips with prices wobbling around 1.3670 as of writing.
Of course, the major risk event for the Pound this week will be the Bank of England policy meeting on Thursday. The central bank is widely expected to leave monetary policy unchanged. However, investors will be closely watching what the BoE has to say about the recent jump in inflation. It is also worth keeping in mind that the BoE was split evenly last month on whether the minimum conditions for a rate hike had been met. All eyes will be on whether the two new committee members would impact this balance.
Looking at the technical picture, the GBPUSD remains under pressure on the daily charts. Sustained weakness below 1.3670 could open a path back towards 1.3570. Alternatively, should 1.3670 prove to be reliable support, a rebound towards 1.3750 could be on the cards.
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