IMF slashes global growth but markets rally

The financial markets were noticeably unfazed during trading on Tuesday despite the International Monetary Fund’s (IMF) gloomy warnings of diminishing global growth which should have dented investor sentiment and soured risk appetite.

In the latest world economic outlook, global growth for 2016 was slashed again to 3.2% with stubbornly low commodity prices and China concerns incessantly exposing major nations to downside risks. The IMF wasted no time in voicing fears of the potentially severe economic and political damage a Brexit could have on the already vulnerable Eurozone economy, but global markets were unexpectedly unmoved because the Brexit anxieties were already deeply embedded into sentiment. It seems that despite the IMF’s warning, which added to the nasty combination of anxieties concerning the lack of a real recovery in global growth, the violent appreciation in oil prices seized center stage consequently offering global stocks a welcome boost with investors retaining risk appetite

Oil rally boost global stocks

Stock markets surged in Tuesday’s trading session with most major stocks surprisingly bouncing back amid the unexpected rebound in oil prices which renewed some confidence towards the global economy. This jolt of positivity was complimented with impressive data from China that offered a welcome boost to Asian equities which were previously depressed from an appreciating Yen. Europe also clawed back some losses on Tuesday closing positive and expectations high that America markets could follow the same positive trajectory when the US session opens as oil prices rise. Investors should keep in mind that despite these short term gains viewed in the stock markets; confidence in the overall global economy remains low while heightened concerns around slowing global growth and declining commodity prices weigh heavily on sentiment. This relief rally in stocks may pave the way to a steeper decline if the Doha meeting on Sunday is unsuccessful, as falling oil prices will sour risk appetite consequently punishing global stocks.

China data beats

Sentiment towards the global economy received a slight uplift this morning following the positive China trade date for March which alleviated some concerns over the slowing pace of growth in the world’s second largest economy. Exports surged 18.7% marking the biggest rise in overseas shipments in over a year with its revival heightening hopes that China may have not been as badly affected by the global turmoil. While these figures may be commended, this anomaly does not change the bearish sentiment towards China, as fears continue to linger that GDP growth for Q1 may miss expectations this Friday.

Sterling bears overwhelm

Sterling bulls were offered another false lifeline on Tuesday following the impressive CPI of 0.5% that mitigated some concerns over a potential slowdown in economic momentum in the UK economy. Bullish investors exploited this opportunity to send the GBPUSD surging almost 150 pips to the upside before prices crashed as investors accepted that the Bank of England is still very unlikely to raise UK rates this week. The pound may continue to be a victim of violent sell-offs as the Brexit concerns mount while the rapidly diminishing expectations over the BoE taking any action in 2016 should ensure prices remain depressed. Sentiment continues to be bearish towards the Sterling despite the inspiration which bulls were offered yesterday and with the IMF voicing their fears over the immeasurable impacts of a Brexit to the UK and Europe, bearish investors have been provided a foundation attack the pound further.

The GBPUSD remains bearish on the daily timeframe and a breakdown back below 1.400 could open a path towards 1.4100 and potentially lower. From a technical standpoint, there have been consistently lower lows and lower highs while the MACD trades to the downside.

Dollar weakness persists

With expectations rapidly fading over the Federal Reserve raising US rates in Q2, Dollar weakness continues to be one of the main themes in the global currency markets. Despite data from the States following a positive path, ongoing global developments such as China woes and falling commodity prices continue to dictate if the Fed will take action. Investors may direct their attention towards the retail sales report today and if this beats expectations then the Dollar could experience a short term bull-run before continuing its slippery slide down.

Crude oil surges

WTI crude surged to $42 during trading on Tuesday following reports that Saudi Arabia and Russia reached an agreement on an oil production freeze which consequently boosted optimism towards a solution to the supply glut. With the source of the report being anonymous this could be a ploy by OPEC members to exploit the volatility in the markets thus creating speculative boosts in oil prices with no real intention of a freeze or cut. Sentiment continues to remain bearish towards WTI and if the meeting in Doha on Sunday leaves investors empty handed, then bearish investors could install a heavy round of selling in WTI that could send oil prices back towards $35. Crude oil inventories will be released today and signs of a buildup could cause an abrupt halt in this current rally with bears eying level below $40. From a technical standpoint, WTI crude trades near critical levels but investors should keep in mind that the firm fundamentals of an oversupply should continue to haunt investor attraction resulting in capped prices.