Global stocks were painted red on Thursday following the European Central Bank’s decision to keep its monetary policy stance unchanged which weighed heavily on market sentiment. This disappointment pressured Asian shares on Friday, with most trading lower following reports that North Korea had conducted a nuclear test. The negativity from Asia has already trickled into European markets and further losses could be expected if risk aversion encourages investors to scatter from riskier assets. With the ECB’s inaction sparking fears that central banks have lost confidence in the benefits of further monetary easing, Wall Street could find itself vulnerable to steeper losses.
The stock market rally which seized the limelight on various occasions may be displaying signs of exhaustion as the ingredients for the bear market ripen by the day. Concerns over the global economy still linger in the background while central bank inaction amid the uncertainty is still a dominant theme. Bears are on the prowl for the catalyst which could trigger a heavy market selloff and such should force investors to remain alert. There are a couple of market shaking events in September such as the Fed and informal OPEC meeting which could sour risk appetite if investors are left empty handed.
ECB remains on standby
A feeling of disappointment rippled across the financial markets on Thursday following the ECB’s decision to keep its monetary policy stance unchanged despite the flagging state of the European economy. Economic growth continues to show little signs of improvement in Europe while inflation is on a static path. Although the central bank expressed its willingness to act by using all instruments available within its mandate to boost Eurozone growth, investors were somewhat unmoved. The ECB has left doors open for an extension to the bond buying program but with central bank caution still rife, questions have been asked if anything will be done.
WTI Oil lurches above $47
WTI Oil was uplifted this week and this has nothing to do with an improved sentiment towards oil but Dollar weakness from fluctuating US rate hike expectations. Prices were propelled higher on Thursday after recent U.S inventory data displayed an astonishingly large drawdown in crude stocks which slightly quelled some oversupply concerns. The factors behind such an enormous drawdown were the tropical storms of Hurricane Hermine and because of their temporary nature, it really does not change oils oversupply woes.
Although the recent talks from Russia and Saudi Arabia about stabilising oil prices has also sparked speculative boosts in oil, the commodity still remains fundamentally bearish. It should be kept in mind that the oversupply concerns continue to haunt investor attraction while fears of faltering demand ensure prices remain depressed. There is an increasing focus on the informal OPEC meeting in September which could spark another selloff if investors are left empty handed.
Commodity spotlight – Gold
Gold was pressured on Friday with prices trading lower towards $1335 as expectations fluctuated over if the Fed will raise US interest rates in 2016. This precious metal remains quite sensitive to US rate speculations and may be injected with volatility as investors ponder whether the central bank will break the trend of central bank caution. Dollar bulls made an appearance on Thursday consequently providing a foundation for Gold bears to install heavy rounds of selling. From a technical standpoint, Gold bulls remain in control as long as the $1315 support defends.