Losses throughout the equity markets continue
The financial markets are continuing to succumb to extraordinary pressures with the Asian markets encountering a sharp sell-off overnight, and following the lead that was set during both the European and US trading sessions from yesterday. There is a very uncertain investor landscape at present that is equating towards sharp losses in the equity markets and this has continued to attract buyers towards safe-haven assets like the Japanese Yen and Gold as trading for the week has commenced. Investor sentiment is continuously being punished by ongoing anxieties over slowing global growth, depression in the oil markets and persistent worries over how a weakening China might impact the global economy, and it is quite clear to see that after weeks of losses throughout the equity markets that investor sentiment towards riskier assets like equites is still extremely weak.
Losses are still being felt across the markets even in the absence of volatility of China trading as the nation celebrates the Chinese New Year and this suggests to me that the persistent concerns over the China economy are not the only underlying factor behind the heavy selling in equities. I personally believe that investor sentiment is being pressured by a variety of different directions at present with global growth concerns and depressed oil prices being the major drivers, and it is important to point out that there were concerns over global economic growth even before the anxieties around China began to intensify. For instance, if you look at the losses being seen in the equity markets in more detail you will see that they are moving in tandem with the oil markets and when the price of oil encounters heavy selling, equity markets are also facing pressure.
Gold reaches $1200
After encountering some profit-taking early in trading and finding support at $1165, Gold bounced higher by over $30 on Monday to trade at levels not seen since late June 2015 at $1200. There is a very clear risk-off trading environment taking place right now, which is driving investors towards safe-haven instruments like Gold. The metal has also benefited from the crumbling expectations for further US interest rate increases from the Federal Reserve in 2016 and if the central bank were to announce that it was postponing any plans to continue raising interest rates then this would provide even more encouragement for investors to look towards Gold.
From a technical standpoint we think that the buying momentum might slow down a little bit in the short-term and that buyers could begin to take some profit on Gold after the metal reached its highest value in over six months. $1200 is now going to be seen as critical resistance for Gold and I think that traders will wait for signals that the metal can conclude trading for the day above $1200 before potentially looking for encouragement that the metal could later reach $1225. With market volatility being at such extreme levels and confidence in the global economy being very low at present, emerging suspicions are growing that 2016 could defy expectations and become a positive year for the metal.
USDJPY drops to levels not seen since November 2014
Gold is not the only financial instrument to have found buyers from investors looking for a safe-haven with the Japanese Yen also finding strong support with gains in the Japanese Currency leading to the USDJPY breaking below 116 and falling to its lowest level since November 2014. The USDJPY has not only completely reversed all of its gains following the unexpected surprise from the Bank of Japan (BoJ) to introduce negative interest rates at the end of January, but the Dollar/Yen has now dropped from 121 to 114 in slightly more than a week. This is quite an astonishing move, and the USDJPY falling below psychologically stubborn support at 116 will pave the way for the currency pair to fall towards further milestone lows.
Despite any potential plans for the BoJ to continue easing monetary policy and the recent gains for the currency over a short period, we remain very positive on the Japanese Yen. Not only is it well-known that the China economy will continue to slow down in 2016, but we think that the equity markets are still only just digesting to an acceptance that prolonged weakness in the oil markets is here to say and with that, global economy growth will be at threat to a further slowdown and this is why I can still see more buyers ahead for the Japanese currency.
WTI Oil falls below $30 once again
WTI Oil fell below $30 once again during trading yesterday before attempting to stabilize narrowly above what has become a stubborn support level for the commodity. Although news around a “successful meeting” between the Saudi Arabian and Venezuelan oil ministers made headlines over the weekend, doubts are still ongoing over whether the OPEC committee might actually agree to a production cut in the future. The most likely scenario in my opinion will be that OPEC members will soon begin publically returning towards the idea that any production cut would have to be agreed between both OPEC and non-OPEC committee members for it to occur, and this is why it is extremely difficult to envisage how any production cut could be planned. It is going to be difficult enough for OPEC committee members to agree between themselves on who will cut production and to what lengths, before even attempting to collaborate on this idea with non-OPEC members.
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