Global equity markets were a sea of green on Friday as investors diverted their attention from geopolitical risks and global growth fears to focus on robust US corporate earnings.
Asian stocks marched to a seven-week high to close positive following the strong earnings-driven gains on Wall Street overnight. European markets are trading higher thanks to Euro weakness and an apparent return of risk appetite. Although the positive domino effect from Asia and Europe is likely to elevate Wall Street this afternoon, this market rally could be living on borrowed time. With ongoing US-China trade tensions, Brexit-related uncertainty, the IMF’s gloomy growth outlook and a prolonged government shutdown in the United States straining risk sentiment, investors should remain guarded. It is becoming increasingly clear that the fundamental ingredients for a sell-off across stock markets remain in place. Equity bears may simply be waiting for an unexpected catalyst before making their move.
Downbeat Draghi sends Euro tumbling
The Euro was an easy target for bearish investors yesterday after President Mario Draghi struck a move dovish tone towards the Eurozone economy.
Geopolitical risk factors in the form of trade tensions and Brexit uncertainty are weighing on Europe while tepid growth in Germany, France and Italy added to the woes. With “risks surrounding the euro area growth outlook moved to the downside” amid persistent uncertainties, the Euro is seen weakening further. The outlook for the Euro remains fundamentally bearish, especially when considering how expectations remain elevated over the central bank leaving interest rates unchanged through summer of 2019 and possibly longer.
Gold basks on geopolitical risks
Gold seesawed between $1,280 and $1,285 earlier this week, before settling around $1,284 on Friday, little changed from the week prior. Bullion is finding $1,300 a tough resistance to break.
Investors remain on the lookout for meaningful progress surrounding US-China trade talks, with five weeks remaining before the US could hike tariffs on $200 billion worth of Chinese goods. A statement regarding the ongoing negotiations is expected next week, that may potentially serve as the next marker in global risk sentiment.
Recent communication from policymakers has added to the narrative of 2019’s expected slower growth, evidenced by the IMF lowering its global growth outlook for the second time in three months, China’s cooling growth in Q4 of 2018, and Germany’s January PMI showing its first contraction in four years.
Such concerns have the ability to support Gold prices by instilling bulls with enough inspiration to challenge $1295 and $1300, respectively. A move towards $1295 will be on the cards in the near term if bulls are able to secure a daily close back above $1286.
Commodity spotlight – WTI
WTI Crude is poised to snap a run of three consecutive weeks of gains, trading below $53.50 at the time of writing.
The outlook on Oil is influenced by a combination of factors; the political crisis in Venezuela which may incur sanctions that could see output being curbed, while over in the US, the Energy Information Administration projects US crude production to continue hitting annual records through the mid-2020s. This comes after US crude stockpiles recently posted their sharpest rise since November and gasoline stockpiles climbed to a record high. Supply-side risks could sabotage attempts by OPEC+ to rebalance the Oil markets, which may test the resolve of year-to-date price gains in WTI Oil.