It’s a new week but the same old story for financial markets as global growth concerns and inflation fears leave investors on edge.
Asian shares advanced on Tuesday morning despite the negative close on Wall Street overnight, after soft Chinese economic data added further pressure on the global economic outlook. These gains were the product of some technology firms rising as market players evaluated a possible relaxation in China’s regulatory crackdown on the industry. The easing of lockdown restrictions in Shanghai is also helping more positive sentiment.
European futures are pointing to a positive open, but gains could be limited by the sense of caution in the air. Although U.S futures are positive following a mixed session yesterday, more volatility could be expected this afternoon due to key US economic reports and speeches from numerous Fed officials.
Weak economic data from the world’s two largest economies has left a bitter aftertaste in the mouth of investors and reinforced concerns around the global economic landscape. Adding to the horrible cocktail are ongoing geopolitical risks which continue to sap confidence and sour appetite towards riskier assets. Given how sentiment remains shaky and fragile, equity markets could be primed for further losses as investors turn to safe haven assets.
On the data front, the UK’s unemployment rate fell to its lowest level in almost 50 years and employment continued to grow in April. Official figures from the Office for National Statistics showed the country’s jobless rate dropped to 3.7% from 3.8% in Q1 of 2022 – the lowest since 1974. Sterling appreciated across the board following the report with GBPUSD pushing above 1.2400.
A volatile week ahead for the Dollar?
King dollar kicked off the week in shaky fashion despite crossing 105.0 last Friday, its highest level since December 2002. Regardless of the slow start, it has appreciated against almost every single G10 currency this month thanks to Fed rate hike expectations and risk aversion stemming from global growth concerns and ongoing geopolitical risks.
The next few days could be volatile for the currency due to key economic reports and numerous speeches from Federal Reserve officials. All eyes will be on the U.S April retail sales and industrial production data this afternoon which the former providing fresh insight into how U.S consumers are coping with high inflation. Fed Chair Powell will be under the spotlight today with other policymakers also on the wires, and if they strike a hawkish tone, this may fuel speculation of a 75-basis point rate hike in June, ultimately elevating the dollar.
Looking at the Dollar Index (DXY), bulls are certainly in a position of power. There have been consistently higher highs and higher lows. However, a technical pullback could be in the making before bulls propel prices higher. 105.00 remains a key level of interest.
Commodity spotlight – Oil
Oil prices were on standby on Tuesday morning after closing at the highest level in almost eight weeks in the previous session. Oil bulls cheered reports about Shanghai reporting no new Covid-19 infections for a third consecutive day. However, news that Hungary resisted the European Union’s move to ban Russian oil imports capped upside gains.
The global commodity remains pulled and tugged by various forces. On one side of the equation, concerns over rising interest rates and recession fears continue to support oil bears. However, bulls remain encouraged by ongoing geopolitical risks revolving around Russia and Ukraine.
Taking a look at the technical picture, WTI has gained over 50% since the start of 2022. Prices are trading around $114 as of writing with the current upside momentum potentially taking prices towards $116.60 and $120, respectively. A decline back below $110 may trigger a selloff towards the $100 level.
Commodity spotlight – Gold
Gold bulls fought back yesterday after prices dipped to their lowest level since late January 2022. A weaker dollar and slight retreat in Treasury yields were seen as key factors triggering a move to the upside. Regardless of recent gains, the precious metal is certainly not out of the woods yet. Should the pending US economic data and speeches from Fed officials boost Fed hike expectations and propel the dollar higher, gold could be in trouble.
On the technical front, prices are approaching the 200-day Simple Moving Average at around $1835. A break above this level could open the door back towards $1855. Should $1835 prove to be reliable resistance, gold may decline back below $1800.