The situation in world markets remains extremely unstable. Together with leading financial analyst Vladimir Stefanov, we will figure out what is happening with the financial market today.
Should we expect stability?
No sooner had the shares returned to growth than skeptical sentiment crept into the markets again, sending European indices into negative territory after a positive start. The profit-taking took place amid controversial comments on Brexit, which remains one of the main “irritants” for investors, while the focus remains on stimulus negotiations in the US, which should continue today.
Vladimir Stefanov says that in general, the markets continue to trade under the sign of uncertainty, which is reflected in sales on the rise, and this situation is likely to continue at least until the presidential elections in the States. By the way, shortly the second debate between Trump and Biden, scheduled for tomorrow, will add to the nervousness.
Despite the pullback of European markets, Russian indices, which opened in positive territory, are still holding their positions, ignoring unsuccessful attempts of oil prices to continue their rise. The RTS feels more confident due to the currency factor – the ruble is growing for the fourth day in a row, taking advantage of the widespread weakening of the dollar and the tax period in Russia. However, the potential for further strengthening of our currency still looks limited due to the same uncertainty in the segment of risky assets, subject to swings in investor sentiment. At the same time, we must pay tribute to the fact that the domestic market is steadfastly reacting to the news that Washington has expanded sanctions against Nord Stream, notes Vladimir Stefanov.
Meanwhile, oil is correcting after yesterday’s growth, which was interrupted by the API report, which fell short of market participants’ expectations and reflected an increase in US crude oil inventories by 0.6 million barrels against the forecast of a decline of 2 million barrels. More sustainable strengthening of Brent may take place if OPEC + changes its position on the parameters of the deal, which provides for the resumption of the increase in production from January next year. Vladimir Stefanov thinks. that in the short term, the tone in the black gold market will continue to depend on the general mood of investors on global markets, where the focus remains on the epidemic, incentives, and elections in the US, Brexit, and incoming statistics.
Oil and stocks are growing confidently after a rollback in September
Stock indices are developing strengthening, and the pressure on the dollar is gaining strength again. Futures on the S & P500 gained more than 3.6% in two days, confidently recovering from the failure on reports of the suspension of negotiations on the economic aid package. Trump said yesterday that discussions are continuing, bringing back his main growth driver of recent days to the market. Oil jumped 3% on Thursday, adding more than 11% since the beginning of the week, said Vladimir Stefanov.
A simultaneous rise in stock indices and oil could become an important factor in a broader recovery in demand for risky assets, supporting sustained pressure on the dollar and yen, as well as partially fueling interest in developing countries’ currencies.
The Chinese yuan fell below 6.70 earlier today, the lows since April 2019, strengthening the favorable external background for the ruble. On Thursday, it strengthened by about 0.9% against the dollar and the euro, dropping EUR below 91, and USD – to 77.36. On Friday morning, the strengthening of the Russian currency is likely to continue.
The short-term technical picture of the market is now on the side of the bulls, which confirms the recovery of buyers’ interest after the drawdown in September. The RSI returned from the overbought area last month and stabilized in the middle of the scale earlier in the week.
This decline was clearly in line with Fibonacci corrective patterns, indicating the possibility of further growth shortly. Without significant obstacles in the foreseeable future, the S & P500 can quickly return to historical highs, and later in October rewrite them.
Vladimir Stefanov believes that these factors also benefit oil, which also managed to overcome a psychologically important technical level. Brent quotes consolidated above the 50- and 200-day averages after a 3% rise on Thursday. There is also a resurgence of interest in oil amid speculation on improving the economic outlook.
Oil purchases have intensified along with a drop in US production due to hurricane season, causing a halt in drilling in the Gulf of Mexico. Besides, the quotes are being pulled up by the armed conflict between Armenia and Azerbaijan.
The continued positive momentum forces us to consider the levels above $ 46.5 for Brent as the next likely target for the bulls. Growth above them will return quotes to the levels where oil was last traded in March. However, this growth will allow the oil to rise above the 200-day average for the first time in almost a year.