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Fundamental Analysis

Equities Bounce Back After Midweek Sell-Off

Typography
  • Trump distraction fades as markets bounce back from midweek sell-off;
  • FTSE weighed down by GBP rebound following Thursday's mini flash crash;
  • Oil boosted by reports that OPEC considering deepening and extending cuts.

It's been one of the quieter days of the week so far in terms of major news flow or economic data and yet, markets are anything but flat as we near the US open, with the events of the previous days continuing to have an impact.

Wednesday's sell-off in equity markets got many people worried about whether the political circus in the US was finally starting to take its toll on investor appetite at the near-record levels. What we've seen since though would clearly suggest otherwise and instead indicate that the moves two days ago were nothing more than a combination of the usual Trump distraction combined with technical levels giving way.

The distraction is obviously undesirable, especially if it develops into anything more, but as it is investors appear relatively confident that it will pass, leaving the administration to focus on the policies that are largely responsible for markets being at these levels, tax reform and spending. The last few months has been something of a waiting game for investors as we await further news on taxes and fiscal stimulus, leaving the S&P and Dow bouncing around between 2,320 and 2,400, and 20,400 and 21,170, respectively. Only a break below here would suggest to me that investors are losing confidence.

In Europe, the FTSE's run this morning has been a little hampered by sterling's resurgence, which comes following a mini flash crash after the European session on Thursday. The stronger pound can weigh on the FTSE, due to its substantial foreign exposure, and that appears to be happening today. The pound is still currently looking a little overextended at these levels and last night's moves are another reminded of its vulnerability. Should it fail to break above 1.3048 against the dollar, it may suggest the pair has topped for now.

Oil is trading higher once again today, supported once again by the prospect of a nine month extension to the current output deal. Reports this morning that OPEC is considering not just extending but also deepening the cuts in a bid to bring the market back into balance is likely supporting the move, with Brent and WTI now on course for their seventh winning session in eight. Of course, just because OPEC is considering this and the Russian energy minister has suggested a willingness to support an extension, it doesn't mean it will happen, especially with regards to the deeper cuts as reported this morning.

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