Monday, 22 February 2016

Oil price volatility punishes global stocks

 
Written by Lukman Otunuga, Research Analyst at FXTM
The stock markets concluded another trading week skewed to the downside as renewed selling in oil prices and elevated concerns over slowing global growth encouraged investors to frantically flee from riskier assets. European equities surrendered most of their gains during trading on Friday with the FTSE100 welcoming the bears following the steep declines in mining stocks. This bearish domino effect trickled into the American arena consequently breaking a three day winning streak in Wall Street as the sell-offs in retail shares weighed heavily on investor sentiment. In the early hours of this morning Asian equities surged with the Nikkei Index trading +0.9% higher as of writing but this has nothing to do with an improved sentiment towards the global economy but with Yen weakness which offered a welcome boost to Japanese shares.


FTSE100 Spotlight


The explosive levels of volatility in the global oil markets amid ongoing global woes have undoubtedly left the FTSE100 vulnerable to further losses in the near term. Investor risk appetite has been tainted by heightened concerns towards slowing global growth while the weakness in mining stocks has encouraged sellers to attack the index at any given opportunity. With the mounting anxieties and growing uncertainty over the potential impact of a Brexit to FTSE companies compounding to the FTSE100 woes, any solid recovery in value may face headwinds. From a technical standpoint, bears may need to break back below 5900 for a further decline towards 5800.


WTI Oil saga continues


WTI Oil meandered around $30 during trading on Friday as investors acknowledged the futility of the January record high OPEC production freeze agreement which Iran supported but refused to join. For an extended period prices have been buoyed by ongoing speculations of production cuts, but with investors losing confidence in the ability of OPEC and Non-OPEC members to cooperate amicably, a swift decline may be pending. Given that despite the proposed production freeze current output is around 2 million barrels per day above demand, any opportunity for a solid recovery in prices has been sabotaged. This horrible combination of an excessive oversupply and waning demand for oil should encourage bearish investors to attack prices towards $25. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. A breakdown below $29 should encourage a steep decline towards $25.


Commodity spotlight – Gold


The incessant declines in the oil prices which continue to punish stock markets and sour investor risk appetite have consequently boosted appetite for safe haven investments such as Gold. This yellow metal is bullish and the diminishing expectations over the Fed raising US rates amid the elevated concerns around slowing global growth should provide a foundation for Gold bulls to install another round of buying. Some support can be observed just above $1190 and bullish investors may take advantage of this support when USD weakness kicks in once more. From a technical standpoint, a breakout above Thursday’s high around $1240 should encourage a further incline back towards the $1263 highs.
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