Risk-off sentiment punishes global stocks

A wave of risk aversion dispersed across the global markets during trading on Monday as the unappetizing combination of heightened Brexit anxieties and elevated concerns over slowing global growth weighed heavily on investor sentiment.

Stock markets were painted in red at the start of the week and may be destined for further declines as uncertainty mounts ahead of the E.U referendum vote on the 23^rd of June. No prisoners were taken in the Asian arena which concluded heavily depressed and the bearish domino wasted no time in attacking European equities with the FTSE100 trading, -1.29% lower as of writing. Wall Street showed exhaustion on Monday and should be set for steeper declines when anxiety accumulates ahead of the Fed meeting which most already expects to conclude without a US interest rate rise.

FTSE100

The FTSE faltered during trading this week with the index shedding over 67 billion in four days as risk aversion encouraged bearish investors to attack prices incessantly. The awful mixture of falling oil prices, concerns over slowing global and Brexit developments could ensure that the FTSE100 remains depressed for an extended period. Risk aversion remains rife and this should encourage investors to depart from riskier assets consequently leaving the index under more pressure. Prices are heavily bearish on the daily time frame and could be poised to trade towards 5950 as risk aversion intensifies.

Soft UK CPI rubs salt on wound

Sentiment towards the UK economy was dealt another blow during trading on Tuesday following May’s static CPI reading of 0.3% which simply renewed concerns over the health of the UK economy. Although the soft data from the UK was a slight cause for concern, most attention has been diverted towards the pending E.U referendum on the 23rd of June which currently shows a shocking lead for the “Brexit” camp. While uncertainty continues to intensify as financial heavyweights repeatedly voice their worries, overall anxiety over the unknown impacts a Brexit could have in the UK, Europe, and the global economy has hit new heights. Even the Eurozone is currently at the mercy of a Brexit, with fears mounting that the UK leaving the European Union may trigger an undesirable domino that causes others to also depart.

The GBPUSD remains on a wild roller coaster ride with prices trading towards fresh two month lows at 1.4115 as bearish investors exploit the uncertainty which has diminished investor attraction towards the currency. From a technical standpoint, this pair is bearish as prices are trading below the daily 20 SMA, while the MACD trades to the downside. A solid breakdown below 1.4100 should open a path towards 1.4000.

Dollar bulls seek inspiration

The Dollar Index experienced an incredible rebound from the 93.50 region last week and this has nothing to do with renewed expectations over the Fed raising US rates but potential profit taking. Although US data has followed a positive path in recent months which bolstered expectations of a rate hike, the dismal NFP report for May coupled with the unstable global environment may have sabotaged all efforts for the Fed to take action. While it is widely expected that US rates are kept unchanged in June and July, investors may seek additional clarity on the possibility of a September interest rate rise.

From a technical standpoint, the Dollar Index has enjoyed a healthy rebound and may be set to trade back lower if 95.00 remains defensive. On the other hand, a solid break about 95.00 could open a path back towards 96.00.

WTI bears re-enter the scene

WTI Crude bears were offered encouragement with prices sinking towards weekly lows of $48 as concerns over the oversupply intensified following the consecutive weekly rise in US rig counts. With fears over the excessive supply overshadowing the short term oil disruptions from major oil export nations, WTI crude could be poised to decline further in the medium term. It should be remembered that the lingering anxieties over a decline in demand, amid slowing global growth may keep prices capped while the zero confidence in any OPEC production freeze deal should provide sellers a foundation to sell. I remain bearish on oil and decisive weekly close below 48.50 may open a path back towards 47.00.

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Otunuga is a research analyst at FXTM