Stock markets are enjoying a bit of a breather in early trading on Thursday, with Europe off marginally and US futures – including the Nasdaq at the time of writing – also only down a little.
This comes after a frantic week that’s seen US tech stocks rapidly enter correction territory, with reports of Softbank betting heavily on the sector in recent months further accelerating the decline. A strong fight back on Wednesday may encourage investors that now see some of their favourite names trading at a heavy discount to a week ago and look much less frothy.
We shouldn’t be lulled into a false sense of security though just because the moves we’re seeing pre-market look a little more normal. We’ve seen an excessive amount of volatility over the last week and the tech sector has only been set back a month. That’s not to say we’re definitely going to see further sharp falls but it should perhaps be approached with caution.
ECB expectations pared back, stimulus hints eyed
Expectations for today’s ECB meeting appear to have pared back over the course of this week which is a little surprising under the circumstances. The bloc is seeing a surge in Covid cases, a slowdown in the economic recovery and negative inflation. Add to this a stronger euro and the central bank surely has more than enough amunition to justify more easing this year?
The headwinds will only grow stronger for the ECB as we enter the final months of the year. These second waves have been problematic but, if the experts are correct, they pale to insignificance compared to what is expected over the winter months. The economic projections should provide more colour on how the central bank sees the situation evolving.
More easing today looks unlikely, but armed with lower projections for growth and inflation, the ECB may lay the groundwork for more stimulus in the coming months should the reality follow the warnings. And they won’t be alone in that, other central banks will likely follow a similar path.
Oil slipping ahead of inventories
The oil recovery didn’t last long, with Brent and WTI prices down more than 1% again today. Brent fell short at $41 while WTI ran into resistance at $38.50. The fundamentals for oil remain troubling and significant waves of Covid in the winter months won’t help matters.
OPEC+ may have to stomach output cuts remaining in force longer than they would have otherwise liked, especially if we see further travel and other restrictions imposed, as we’re already seeing, as cases surge. The inventory data will be interesting today, with a rise in inventories potentially being the catalyst for another decline in prices.
Gold cautiously higher
Gold is edging higher again on Thursday, gaining as the dollar continues to pare recent gains. The moves are relatively small though and depend heavily on dollar selling gathering momentum and, as yet, we’re not seeing that. The dollar appears to have broken out of the upper end of its range which could be problematic.
The greenback is dragging its feet though which may be encouraging for gold bulls. The ECB may have a hand to play in things today. Should the stimulus expectations be unfounded, the euro could rally once more, putting further downward pressure on the dollar and giving gold prices a boost. That said, the euro still looks strong going into the event as expectations have pared back, perhaps the opposite (dovish ECB and weaker euro) will be the path of least resistance.
