Global stocks oscillated between losses and gains on Monday as investor anxiety triggered expectations to fluctuate over the Federal Reserve raising US interest rates in September. Although market participants were provided clarity last week when Yellen stated that the case for raising US rates had strengthened in recent months, September could be premature to act and investors may be digesting this reality. Asian stocks commenced Tuesday on a solid footing borrowing the upside momentum from Wall Street and could trade higher as optimism over the BoJ unleashing further monetary measures attract investors to riskier assets. In Europe, stocks were vulnerability to losses by the intensifying rate hike signals while Wall Street received a welcome boost from rising banking stocks. Stock markets may meander between losses and gains ahead of Friday’s NFP report which if exceeds expectations could provide a justifiable reason for the Fed to raise US rates in December.
Although the renewed rate hike hopes have somewhat elevated global sentiment and propelled stock markets higher, exhaustion is becoming visible and such should keep investors diligent. Fears over the global economy continue to linger in the background while uncertainty and depressed oil prices weigh heavily on investor risk sentiment. With central bank caution still a recurrent theme, the ingredients for a bear market are visible. It could take an unexpected catalyst to trigger a heavy selloff with bears on the prowl waiting for the opportunity to attack.
GBP/USD sinks below 1.3100
Sterling descended lower on Tuesday with the British pound/U.S dollar (GBP/USD) currency pair sinking below 1.3100 as the combination of Sterling vulnerability and Dollar resurgence from renewed rate hike hopes, enticed sellers to install repeated rounds of selling. It is becoming increasingly clear that Brexit has left the Sterling inherently pressured with the persistent uncertainty haunting investor attraction towards the currency. Sentiment remains firmly bearish towards the pound with further declines expected as expectations mount over the BoE cutting UK interest rates to near zero in a bid to reclaim economic stability. Sterling/Dollar remains fundamentally bearish and the divergence in monetary policy between the Fed and BoE could encourage a further decline back towards 1.2900. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has also crossed to the downside. Previous support around 1.3100 could transform into a dynamic resistance which opens a path towards 1.2900.
Commodity spotlight – Gold
Gold was searching for direction on Monday as expectations started to shift over the Fed raising US interest rates in September. This precious metal remains highly sensitive to US rate hike expectations and could meander between losses and gains ahead of Friday’s NFP. Although prices are already bearish on the daily timeframe, a positive NFP could be the catalyst needed for bears to conquer the firm $1315 support. From a technical standpoint, a breakdown below $1315 could open a path towards $1285.