Stock markets mostly higher despite IMF’s gloom

Stock markets displayed some resilience during trading on Wednesday despite the International Monetary Fund's gloomy growth outlook which noticeably soured risk appetite. Asian stocks were left depressed on Tuesday and entered Wednesday mixed as investors were forced to re-evaluate the state of the global economy post the IMF's forecast. Although European equities received a welcome boost from rising technology stocks, future declines could be expected as the lingering concerns over slowing global growth reduce attraction for riskier assets. Wall Street displayed exhaustion on Tuesday, but could open higher if the bullish contagion from Europe creates a foundation for bulls to install another round of buying.

Global stocks have enjoyed an extended period of gains which have been fuelled by optimism over central banks intervening to quell the financial turmoil. With fears over slowing global growth and diminishing global confidence lingering in the background, questions should be asked over the sustainability of the market rally. Although the easing Brexit concerns and stabilising China data have somewhat elevated global sentiment, investors should remain cautious when dealing with this over extended relief rally.

 

IMF cut global growth

Global sentiment was dealt a heavy blow on Tuesday following the IMF's downgrade of global growth to 3.1% this year, a 0.1% reduction from its previous forecast. The IMF has repeatedly trimmed global growth forecasts this year with the Brexit scenario providing additional uncertainty to an already vulnerable global economy. With risk aversion renewed as concerns elevate over the slowing global growth, stocks and riskier assets could face further punishment.

 

ECB meeting in focus

Investors may direct their attention towards the heavily anticipated European Central Bank meeting on Thursday which is widely expected to conclude without any changes to key policy settings. This should be of no surprise as the current unstable financial landscape has created a period of central bank caution consequently forcing most central banks to remain on standby. The impacts of the Brexit have already rattled the European Union with expectations mounting over a potential decline in GDP growth. Even before the Brexit woes, Europe was entangled in a battle with static inflation while ongoing global events exposed the nation to downside risks. While the ECB may remain on hold on Thursday, there is a strong possibility that doors may be left open for further easing in the future. In regards to Mario Draghi, he may reiterate his dovish chorus on the health of the Eurozone economy which could send the EUR lower.

From a technical standpoint, the EURUSD is turning increasing bearish on the daily timeframe and a breakdown below 1.1000 could open a path towards 1.0900. Prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. If bears conquer 1.1000, then this once stubborn support could transform into a dynamic resistance that encourages the decline towards 1.0900.

 

Positive UK employment propels Sterling

The Sterling bulls were offered another lifeline on Wednesday following a report which showed the UK employment rate falling below 5% for the first time since 2005. Under normal circumstance, an improvement in employment should bolster sentiment towards the UK economy as optimism rises over the nation displaying economic stability. Unfortunately, these are not normal circumstances and the persistent post-Brexit uncertainty should sabotage any real recovery in the value of the Sterling. It should also be kept in mind that expectations have heightened over the BoE cutting UK rates in the future which could encourage bearish investors to install a round of selling. Although Wednesday's positive employment report could trigger a relief rally in the GBPUSD, the divergence in monetary policy between the BoE and Fed should limit how high prices can go. From a technical standpoint, the GBPUSD has found a stubborn support above 1.3100 and a breakdown below this level may open a path towards 1.2800.

 

Commodity spotlight – Gold

Gold prices faltered on Wednesday as a combination of Dollar strength and rising expectations over the Fed raising US rates in 2016 encouraged bearish investors to send prices lower. Regardless of these short-term losses, this yellow metal has the ability to rebound as the IMF's gloomy growth outlook rekindles a wave of jitters consequently boosting appetite for safe-haven assets. Gold bulls need to defend the $1320 support for a potential incline back towards $1345. A sharp decline below $1320 could leave the precious metal vulnerable to further losses.