Yesterday saw the continuation of the market’s “risk-off” sentiment, which has been triggered by the Fed’s “Monetary Policy u-turn” fading. This specifically affected the stocks and the US Dollar. Some market participants have advised that the latest economic figures in the US have put a 50-basis point hike in doubt. However, most economists advise a 50-basis point is still largely expected. However, this may change if the Producer Price Index and inflation figures are higher than expected.
Equities and Safe-Haven Assets
The NASDAQ saw its strongest decline since the first week of November, as did most of the global equity markets. However, safe haven assets such as Gold and the bond market did not see an increase in value even with the decline in the stock market. Below (Under Dax Sub-heading), we will explain the reasons behind the latest decline in US and global stocks.
According to the US Commodity Futures Trading Commission, short positions still hold the lead over long positions. The US Dollar, on the other hand, has increased in value over the past 48 hours. Many economists advised the US Dollar may be undervalued at a price under 104.50.
Crude Oil
The price of Crude Oil also continues to come under pressure and has formed its 4th day of consecutive declines. The price again renewed its lows after declining by more than 5% during yesterday’s trading session. Crude oil this morning is slightly higher but not receiving any buy signals from technical analysis.
The price has come under pressure from Saudi Arabia and other major exporters, who lowered their prices for Crude Oil, which sparked concern over the level of demand. Saudi Arabia decreased their prices by $2.20 for China and $1.80 for the European Union. The price was also influenced by the Fed taking a potentially more hawkish stance in December than originally expected.
Though traders should note that the price is trading at a previous support level and may be supported by the re-opening of China. In addition to this, investors are still closely monitoring the price cap on Russian oil and Russia’s response, which has not yet come.
DAX (German-30)
The price of the DAX has generally performed well compared to other European Indexes and did not decline as vigorously as did US stocks. Nonetheless, the price of the DAX did decline yesterday by 1.45%. The price this morning has slightly increased forming a retracement but still remains lower than the previous impulse wave. Therefore the price may potentially come under further pressure. Our technical analysis video below can assist with the price analysis.
The global equity markets had generally performed well during November as it seemed that interest rates would reach their peak soon and the economy generally remained stable. However, December tends to be a difficult month for the stock market, this is known as the December and January Effect.
In addition, the monetary policy may continue to rise by at least a further 1% and will remain there for no less than 12 months. Generally, this can harm economic growth and consumer demand which is not great for equities. However, this will also depend on the economic data over the next 2-3 months. Mainly in Germany, France and especially the US.
Equities around the world specifically came under pressure after multiple banks in the US spread a word of concern to the financial trading markets. Goldman Sachs and JP Morgan both took part in interviews yesterday afternoon and advised that the economy looks “gloomy” for 2023. According to most economists, the global economy is likely to fall into a recession or at least a prolonged period of stagnation. JP Morgan advised markets that the bank would make 1,600 employees redundant.
On the positive side, German industrial orders showed an increase of 0.8% after declining by 4.0% the previous month. In annual terms, the decline in the indicator slowed down from -10.8% to -3.2%, which again turned out to be significantly better than forecasts at the level of -7.5%. Throughout the day, traders will be looking at the EU’s GDP figures for the 3rd quarter.
Summary:
- Global stocks come under pressure from “risk off” sentiment and a poor economic outlook for 2023.
- Crude oil declines for a 4th consecutive day and re-news price lows. Saudi Arabia discounts prices for China and the EU over-demand concerns.
- DAX comes under pressure from global risk sentiment, but the economy performs better than expected.
- Goldman Sachs and JP Morgan reduce bonuses and proceed with redundancy. Both advice of either a recession or a prolonged period of stagnation.