Global stocks received a welcome boost last week following the soft U.S jobs data for August which questioned the likelihood of the Federal Reserve raising US interest rates in 2016. Asian markets commenced Monday on a solid footing with the Nikkei rising +0.66% as expectations heightened over the BoJ implementing further stimulus measures to stabilise its ailing economy. European stocks charged into fresh four-month highs last week with further gains expected today if Asia’s bullish contagion trickles into the European markets. Wall Street was elevated higher on Friday as the combination of Dollar weakness and fading rate hike hopes attracted investors to riskier assets.
Although stock markets may be open to further gains in the short term, the ingredients for a bear trend remain visible and such should keep investors alert. The ongoing concerns over the global economy may spark jitters while depressed oil prices weigh heavily on investor risk sentiment. Uncertainty is still a recurrent theme in the markets which could offer an opportunity for bears to exploit the over-extended relief rally in stocks. While a September rate hike may be discounted following the recent soft U.S jobs report, the 41% possibility of the Fed taking action in December could pressure stocks in the future.
Dollar vulnerable post-NFP
Dollar bulls were left empty handed on Friday following August’s soft NFP headline figure of 151k which instantly dampened hopes over the Federal Reserve raising interest rates in September. Average earnings reduced by 0.1% and when such was combined with the soft headline figure of 155k, many questions were raised over the resilience of the US labour force in this period of uncertainty. Although US domestic data in August has followed a positive path, this soft U.S jobs data may have provided a strong reason for the Fed to remain on standby in September. For December to be a “live” meeting for the Fed to break the tradition of central bank caution, US data may have to repeatedly exceed expectations with the U.S labour showing greater signs of improvement.
The Dollar received a heavy blow after the soft U.S jobs report with the Dollar Index finding it difficult to break above 96.00. This Index may turn technically bearish once sellers conquer the daily 20 SMA. A solid breakdown below 95.50 could encourage a further decline back towards 95.00.
Sterling firm ahead of UK services PMI
Sterling experienced an incredible rebound last week with the GBPUSD charging above 1.3300 as the combination of repeatedly positive domestic UK data and Dollar weakness invited bulls to install heavy rounds of buying. Sentiment towards the Sterling has been uplifted following the impressive manufacturing and construction PMI releases which questioned if the Brexit had any negative impacts on the UK economy. With the string of positive economic data eroding expectations over the Bank of England easing further in the future, Sterling bulls have run rampant.
Investors may direct their attention towards the critical services PMI report which may offer clarity on how services have fared post-Brexit. If UK services follow the same positive pattern as construction and manufacturing, then Sterling could be open to extreme gains moving forward.
While further gains in the Pound could be realised in the short term amid the positive data, it still remains too early to come to a decisive conclusion on how Brexit has affected the UK with more time needed to weigh the impacts.
Commodity spotlight – WTI Oil
WTI Oil rallied towards $44.60 on Friday and this has nothing to do with an improved sentiment towards oil but Dollar weakness from fading US rate hike expectations. Although further gains in oil prices may be realised in the short term amid Dollar weakness, this commodity remains fundamentally bearish.
It should be kept in mind that concerns remain elevated over the excessive oversupply of oil in the global markets while the fading hopes over OPEC securing a freeze deal in September’s informal meeting continue to cap upside gains. With crude oil stock piles rising incessantly further losses may be expected in the longer term when bears exploit the current correction to install a heavy round of selling. From a technical standpoint, prices remain bearish and a move back below $44 could open a path towards $40.