With the exception of the German DAX, European stocks have opened trading by easing away from recent highs. I do not think that the bull-run for the German DAX is complete and in the longer-term, it is probably going to continue moving higher. It appears that the German economy has finally got over that unexpected period of turbulence during the second half of last year, which will now allow investors to concentrate on Germany as the shining light for Europe. It is expected that European stocks are going to continue to rally as the European Central Bank (ECB) unleashes further unconventional monetary easing to lift economic sentiment but with economic progress being rather tentative in several parts of Europe and Germany’s well-known reputation as an economic powerhouse, the DAX will probably benefit the most from ECB QE.
The FTSE 100 is another stock that has attracted interest recently, after finally closing at the record level last seen in 1999. Due to the FTSE 100 rise being substantially slower than the bounces seen in US and European stocks, many see the FTSE 100 as an underperformer. One thing to take into account is that one of the major catalysts behind the bullish momentum in stocks has been further monetary easing from various central banks. The Bank of England (BoE) had been under pressure to raise interest rates for some time but with those expectations on pause due to the unexpected UK disinflation risks, the FTSE might slip away from the record close seen a few days ago. The FTSE 100 is also comprised of major financial, mining and oil companies. These companies will face some challenges in light of the lower commodity prices – meaning the FTSE 100 could be at risks of pullbacks.
Speaking of commodities, we received a further signal yesterday that $48 is the lower trading range for WTI Crude after it failed to break despite another stunning rise in US inventories. The $48 mark has been tested at least five times this month with this including three times this week alone, and it is impressive that it failed to be at risk despite US inventories coming in at double the expectations once again. There were even signs that investor’s shorts are being squeezed at $48 when WTI rebounded to conclude trading at $51.08. Such a rise in inventories is going to strengthen the argument that supply levels are still far outstretching demand, meaning there are still risks to a pullback but investors are going to take some comfort that a floor for now can be seen around at $48.
Gold bulls are trying to recover some lost ground after statements from Federal Reserve Chairwoman Janet Yellen hinted that the second half of the year is when we can expect the FOMC to begin raising US Interest rates, with any time before that being seen as highly unlikely. I see the potential for Gold to continue moving higher in the short-term because most are expecting tomorrow’s US GDP estimate to be revised lower. This should further push back any remaining expectations for a rate increase before June to be postponed until September time in my opinion.
Written by Jameel Ahmad, Chief Market Analyst at FXTM.
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