Global stocks sprinted to fresh record highs on Friday as solid economic data from the US and Europe bolstered risk sentiment. Asian shares rallied to their best levels in more than two years amid the growing appetite for risk, with the bullish momentum heavily supporting European equities. Wall Street concluded as a winner on Thursday and could follow a similar pattern this afternoon if the pending US jobs report for May exceeds expectations consequently boosting confidence towards the US economy.
Although equity bulls seem to be back in town at the start of June, questions should still be raised over the sustainability of the current rally. With uncertainty still a lingering theme and political tensions in both the US and Europe creating anxiety, the upside may face some headwinds down the road.
Sterling unfazed by strong construction data
The fact that Sterling was on the back foot on Friday despite May’s solid construction PMI of 56.00 continues to highlight how political jitters in the UK and Brexit fears have become bone deep. It is becoming clear that Brexit developments may dictate where Sterling trades and uncertainty is likely to limit any concrete upside gains. With recent polls suggesting a potential situation where Theresa May fails to secure enough seats to form a government, investors have become jittery of a “hung parliament” scenario playing out. From a technical standpoint, the GBPUSD bears need to secure a daily close below 1.2775 to encourage a further depreciation towards 1.2600.
Dollar steady ahead of NFP
The Greenback staged a modest recovery during Thursday’s trading session following the impressive ISM manufacturing and ADP employment data which boosted confidence towards the US economy. With data from the States displaying some signs of stability, speculation hasalready mounted over the Federal Reserve raising US rate beyond June’s meeting. The main event risk for the Dollar this afternoon is the NFP report for May which investors expect to print at 185k. While a positive jobs report could inspire Dollar bullish investors, the upside could still face some headwinds from the political uncertainty in Washington.
Oil bears strike again
Oil markets were vulnerable to heavy losses on Thursday amid fears that Donald Trump’s decision to ditch a global climate pact could inspire more crude drilling in the US, fuelling oversupply woes. The selling pressure intensified on Friday with WTI Crude tumbling towards $47 as the prospect of more supply, in an already heavily saturated market, haunted investors’ attraction towards the commodity. I believe the story about oil revolves around oversupply concerns with OPEC’s efforts to stabilize the markets repeatedly sabotaged by US Shale. Although OPEC and Non-OPEC members have agreed to extend the output cuts by another nine months, markets are clearly not impressed and the bearish price action on WTI Crude is a testament to this. From a technical standpoint, WTI Crude is under pressure and the breakdown below $48 should encourage a decline towards $46.
Commodity spotlight – Gold
Gold displayed early signs of weakness on Thursday following the robust ADP Employment Report for May which reinforced expectations of a US interest rate increase in June. Selling pressure intensified during early trading on Friday with the yellow metal tumbling to a fresh one-week low at $1258.85 as the Greenback stabilized. Although Gold remains at risk of depreciating further this afternoon if the pending May jobs report exceeds expectations, the downside should be limited by political tensions in the US and Europe. With uncertainty still a dominant theme across the markets, Gold could remain supported moving forward. From a technical standpoint, bulls need to maintain dominance above $1260 for prices to appreciate towards $1275. In an alternative scenario, repeated weakness under $1260 is likely to open a path to $1245.
