Financial markets seeking inspiration

An eerie calm shrouded the financial markets last week, with global stocks floating near record highs as investors maintained a cautious trading stance.

The rising anxiety over ongoing geopolitical tensions has exposed Asian shares to losses during early trading on Monday with some disappointing data from China compounding to the downside pressure. Although the current absence of political risk in Europe continues to elevate European equities, the upside may face headwinds down the road from the persistent uncertainty gravitating around Brexit.

Wall Street relinquished short-term gains on Friday following the soft retail sales and inflation data and should be poised to edge lower this afternoon as investors re-evaluate the likelihood of an interest rate increase in June. With an air of anxiety suffocating participants who seek risk, and soft economic data from the US and China weighing on sentiment, the “Sell in May and go away” strategy may become a popular choice.

Sterling edges above 1.2900

Sterling ventured higher on Monday but this appreciation felt more technical than fundamental as prices found support above the daily 20 Simple Moving Average. Although short term bulls may exploit the upside momentum to elevate the Pound higher towards 1.3000, uncertainty over Brexit should limit gains in the medium to longer-term. Sterling bears still have a shot to attack, especially when considering that the threat of Brexit negatively impacting the UK economy has encouraged the Bank of England to maintain a dovish stance. The central bank has already trimmed its prediction for growth this year amid the Brexit uncertainty while rising levels of inflation and sluggish wage continue to dent consumer confidence. With consumer spending likely to face a squeeze amid the accelerating inflation and vulnerable Sterling, the GBPUSD still remains exposed to downside risks.

While bulls may propel the GBPUSD towards 1.3000 in the short term, repeated weakness below 1.2775 will encourage a decline towards 1.2600.

WTI offered another lifeline

Oil markets received a solid boost on Monday and bulls offered a lifeline after top exporters Saudi Arabia and Russia said that supply cuts should be extended until March 2018. While the prospect of the world’s two top oil producers working together to battle the oversupply woes may support WTI in the short term, gains may be limited if US Shale’s incessant pumping sabotages OPEC’s effort to stabilize the markets.

Although most remain cautiously optimistic that the OPEC meeting on 25 May will result in an extension to the supply cut deal, one should learn to always expect the unexpected when dealing with the cartel.  From a technical standpoint, a daily close above $49 on WTI Crude should encourage a further appreciation towards the psychological $50 level.

Commodity spotlight – Gold

Gold edged higher on Monday after weaker than expected economic data from the US on Friday exposed the Dollar to losses. Ongoing geopolitical tensions concerning North Korea continue to support the yellow metal with prices trading around $1230 as of writing. Although Gold remains technically bearish on the daily charts, this period of uncertainty should trigger a technical bounce that opens a path towards $1245. From a technical standpoint, bulls need a daily close above $1235 to open the gates towards $1245. In an alternative scenario, a breakdown below $1225 may trigger a selloff back towards $1215.