Markets are likely to conclude the week vulnerable to downside pressures with sentiment under threat following the return of weak data from China overnight and as the resumed selling in commodities weighs on investor confidence. Just one week after investors reacted positively towards China’s GDP attaining the government target at 7%, anxiety over the economic health of China has returned following the news that China’s factor sector had contracted the most in 15 months.
The overnight PMI data has reinstalled concerns over economic momentum in China continuing to decline, which has also encouraged suspicions that the People’s Bank of China (PBoC) will unleash further economic stimulus with myself thinking it could possibly arrive as early as this weekend.
The consequences to the economic data from China has not concluded with the suspicions about the increased possibility of further PBoC action with the data also playing a huge contributing factor behind the AUDUSD hitting a new six-year low at 0.7268. Further selling pressure in both Gold and WTI has also been installed and while it has previously been fears over the oversupply of oil in the markets that have continually plagued investor sentiment, we are encountering increased concerns over there also being less demand for oil moving forward and such poor data from China does not help remove these anxieties.
As noted earlier this week, Gold dropping below $1100 was a huge psychological move and extended its outlook to further falls to which has been met with a fresh five-year low at $1077 early this morning. There was already clear hesitation from buyers to purchase Gold as the expectations for a US interest rate rise from the Federal Reserve moves closer and the move below $1100 just further eliminated buyers from even considering purchasing Gold. I still think we are going to hit further milestone lows when it comes to the price of Gold and even if the metal does manage to appreciate back up the charts, selling on to rallies will be the trading strategy from investors because we are receiving further repeated comments of commitment from the Federal Reserve that they will begin raising US interest rates during the second half of 2015.
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In line with expectations, the GBPUSD has once again withdrawn its gains with the pair suffering losses over one cent following the news that UK retail sales missed expectations and as the economic sentiment in the US received a boost following the announcement that jobless claims fell to over a four-year low. Although BoE Governor Mark Carney got the Pound bulls excited again following his unexpected upbeat comments about the possibility of a UK interest rate increase at the turn of the year, I am looking at the resumed selling in WTI and wondering whether the BoE’s strict views on inflation pressures will lead to a retreat of those comments and later on haunt investor sentiment towards the Pound.
Follow Jameel on Twitter @Jameel_FXTM
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