Global markets have been trading in the green zone today with major future contracts on the Dow Jones and S&P 500 trading 4% higher than yesterday’s close.
Oil also is trading higher today, supported by the improvement in trader’s risk appetite. In the short-term, the expectation is the rebound may continue toward the resistance levels at 27.50. However, on a long-time view the trend is still bearish as the price is likely to be impacted by both reduced demand and the ongoing price war.
The continued improvement in sentiment today is driven mainly by the unprecedented move by the Fed to open-ended quantitative easing (QE) and took accommodative monetary policy to a whole new level. The Fed also has started to buy into investment-grade bonds (inspired by the ECB) and ETFs (an idea lifted from the BoJ). Measures as drastic as this were not introduced even at the peak of the finical crisis.
IG bonds and ETF showing a V-Recovery
Now, we believe persistent support for the markets is far more important than the efficiency of any measure. Moreover, the Fed’s move will help reduce the funding burdens, which were the main drivers for the rise in the US dollar.
Gold – the classic hedge against low interest rates - rose 2.2% today and is lingering well above the 1,555 levels. It is filtering 1,600, and is expected to break out of this resistance and continue its long-term bull trend. The US dollar recoiled after its 10-day winning stretch; such retracement could help all other major currencies to recuperate their losses in today’s session.
Acting as a shelter to hedge purchasing power, gold is filtering $1,600 level
European PMIs all have shown contractions today. However, such fallout is already priced in and markets are more concerned with fiscal stimulus packages, especially in the US. Any positive news regarding an agreement in congress about fiscal support to the economy will spur on sentiment further.