Equity Markets, Oil, Gold

Equities quickly bounce back

It didn't take long for investors to buy the dip, with equity markets back in the green on Thursday following a two day pause which appeared to be nothing more than soft profit taking.

The rebound even follows a brief dip in US futures overnight, which came very suddenly and appeared to be triggered by very little, but those losses were gradually recouped over the following hours. The US inflation data on Wednesday didn't do the markets any harm, with the slight dip only adding to the case for rate cuts this year, although it wasn't quite significant enough to dramatically alter people's views.

The odds have slightly moved in favour of a third rate hike by the end of the year – although no hike this month – but this has been something of a coin toss for a while with the pendulum swinging back and forth between two and three. Ultimately, the meeting – assuming it takes place – between Trump and Xi later this month will highly influence how aggressive the Fed will be, which is probably largely why the central bank is expected to hold this month.

Oil spikes on reports of tanker explosions

Oil prices have spiked on Thursday following reports of tankers being attacked in the Gulf of Oman, off the coast of Iran. This comes a month after allegations of sabotage in the same region, which was blamed on Iran and threatened to stoke further tensions in the region. It comes at a time when the US has imposed sanctions on Iran in an attempt to reduce oil exports to zero, ruin the economy and apply maximum pressure to the regime after Trump pulled out of the nuclear accord.

The knee jerk reaction is more a response to the risks associated with higher tensions in the region and prospect of more attacks, than immediate impact on oil supplies. It comes at a time when oil prices have been under pressure from weaker economic prospects and record US output, despite efforts by OPEC and its allies to reduce output and cut the oversupply. WTI was hovering around $50 when the reports came out which may have aided the rally, being such a key support level. As long as prices remain below $55 though, it will continue to look vulnerable.

Gold eyes prior peak after brief correction

Gold is continuing to edge higher today, supported to an extent by the weaker dollar, not that it held the yellow metal back much yesterday. It found strong support around $1,320 earlier this week and has since burst higher with the previous peak around $1,350 in its view. A break of this could propel gold higher, although it will have to be matched with momentum because as we saw last week, the absence of this saw it reverse course very quickly.

The shallow correction earlier this week will be encouraging for gold bulls, having only retraced around a third of the previous rally, although this optimism may fade fast if it runs out of steam prior to the peak. Risk appetite in the markets is likely to work against gold but the dollar looking vulnerable is clearly supportive.