Stock markets charged into gains during trading on Tuesday as rising commodity prices and dollar weakness amid fluctuating US rate hike expectations attracted investors to riskier assets. Asian shares ended higher, elevated by strong financials and a resurgence in oil prices which bolstered risk sentiment. European stocks were uplifted by Asia’s bullish contagion and this could trickle into Wall Street later today.
Although the short term gains in stocks are impressive, the extreme sensitivity to oil price volatility and Fed rate hike expectations remain a cause for concern. The bearish fundamentals revolving around slowing global growth, Brexit jitters, and uncertainty ahead of the US economy are enough to sabotage upside gains. A stock market selloff could be pending and it may take an unexpected catalyst to entice bears to install repeated rounds of selling.
UK inflation near 2 year high Sterling edged higher on Tuesday following September’s inflation figure of 1%, which was the highest since 2014. This sharp rise in inflation illustrates the effects of sterling’s vulnerability with inflation poised to edge higher, as hard Brexit jitters subdue the pound. Today’s report may add to the attributes which quell expectations over the Bank of England cutting UK interest rates this year.
Despite today’s short term gains, sentiment remains bearish towards the pound, with weakness remaining the dominant theme as uncertainty encourages sellers to attack.The GBP/USD staged an impressive rebound in the early sessions of Tuesday, which had nothing to do with an improved sentiment towards the sterling, but temporary dollar weakness. Sellers could exploit the current technical bounce to drag prices back below 1.2150.
US CPI in focus The dollar took a tea break on Tuesday, slipping away from seven month highs against a currency basket as investors re-evaluated the possibility of a US interest rate rise this year. Bears made a slight appearance on Monday following the soft US industrial production in September while conflicting comments from Fed officials on US rate timings kept investors on edge. Although expectations remain elevated over the Federal Reserve taking action this year, the conflicting rhetoric and growing uncertainty has sparked concerns of a rate increase not being a done deal.
Investors may direct their attention towards Tuesday’s US inflation data which could provide further clarity on the health of the US economy. Price stability is one of the key prerequisites for the Fed to step forward with a positive inflation figure providing another justifiable reason for the central bank to pull the trigger in December. Commodity spotlight – gold Gold bulls received a lifeline on Monday following the soft US data and conflicting statements from Fed officials which rattled expectations over a US rate increase in 2016. Although speculations have heightened over the central bank taking action, the instances of uncertainty continue to make gold quite attractive to investors in the short term. If dollar weakness persists, then bulls could be gifted another opportunity to install heavy rounds of buying which could send gold higher towards $1270 once $1260 is conquered.
Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.