Stock markets submit to oil

Global stock markets briskly surrendered their gains during trading on Tuesday amid the steep decline in oil prices which effectively diminished investor confidence towards the global economy. Asian stocks were left battered and depressed following China’s Central Bank’s heavy depreciation of the Yuan while the strengthening of the Yen punished Japanese shares dragging them into red territory. These losses seeped into the European markets which were already pressured by risk aversion and poised to trade lower when the latest German Ifo survey pointed to a decline in moral for February. American markets followed the same negative trajectory concluding Tuesday in the red as investors digested the reality of the current unfavourable economic landscape.

It is becoming increasingly clear that the elevated concerns over the state of the global economy have manufactured a highly sensitive trading environment which continues to be dictated by violent swings in the oil markets. With anxieties towards the ongoing global turmoil still heightened and further declines in oil prices expected, stock markets may be left vulnerable and set for more pain as jittery investors systematically scatter away from riskier assets.

WTI trades towards $30

Oil prices declined considerably during trading on Tuesday following the recent reports from the American Petroleum Institute showing crude oil inventories rising by 7.1 million barrels which intensified the ongoing concerns around the excessive oversupply in the markets. WTI Oil tanked further trading towards $31 after comments from Saudi Arabia’s Oil Minister, Ali Al-Naimi slashed any possibility of a production cut which haunted investor attraction and encouraged bearish investors to attack the commodity. The final blow was when Iran called the production freeze proposal “laughable” and this was a very strong signal that a production freeze or cut may not be forthcoming anytime soon. With the visible conflict of interest and lack of cooperation between OPEC and Non-OPEC members sabotaging any production cuts, prices may decline further as concerns over the unrelenting oversupply install another round of selling momentum across the oil markets. From a technical standpoint, this commodity is bearish and a breakdown back below $30 should encourage a further decline towards $25.

Sterling bears remain relentless

The growing anxieties over the pending EU referendum vote and the uncertain impacts it may have on the UK economy have triggered an aggressive selloff of the Sterling across the global currency markets with the GBPUSD sinking to fresh 7 year lows at 1.396. This latest development has provided yet another reason for the Bank of England to push back interest rate expectations which should encourage sellers to attack the currency pair further. With the UK interest rate expectations repeatedly pushed back, UK inflation growth following a tepid path and the current Brexit theme eroding investor attraction towards the Sterling, prices may be left vulnerable and open to further losses.

The GBPUSD remains heavily bearish and previous support at 1.400 may become a dynamic resistance which should encourage a further decline towards 1.380. Technical indicators such as the MACD and 20 SMA which all point to the downside marry this daily bearish outlook.

Commodity spotlight – Gold

The re-established wave of wave of risk aversion which punished global stock markets has acted as a welcome boost for Gold sending the precious metal to the highs of $1232.5 during trading on Tuesday. This yellow metal remains heavily bullish and prices may be set to appreciate further as anxious investors pile into safe haven assets amid the sharp declines in oil prices which continue to sour risk appetite. With USD weakness quite visible and expectations rapidly fading towards the Fed raising US rates anytime soon, Gold bulls have been granted an opportunity to install another round of buying with targets stretching back towards $1263. From a technical standpoint, a breakout above $1240 should encourage a further incline towards $1263 and potentially higher.