MARKETS: Rising political uncertainty weighs on sentiment

 
Asian markets traded mixed on Wednesday as the Trump-off trading mood dented investor risk sentiment. With depressed oil prices potentially fuelling the risk aversion, European markets could come under renewed selling pressures in the short term. Wall Street remains gripped by the Trump uncertainty and the sensitivity in American stocks should be expected to rise as investors seek further clues on what policies the US President may unravel this week. The threat of protectionist policies impacting global growth and overall political uncertainty eroding risk appetite could leave stock markets vulnerable to heavy losses in the medium to longer term.

Dollar remains Trumped

The Greenback staged an impressive rebound on Tuesday following hawkish comments from a US Federal Reserve official which reinforced expectations of a US interest rate hike in March. While the prospects of higher US rates may ensure the Dollar remains buoyed in the medium term, the erratic Trump policies coupled with concerns over protectionism impacting US growth could expose the Greenback to downside risks in the short term. It should be kept in mind that the driver behind the Dollar’s phenomenal gains was optimism over fiscal policies boosting US growth, and there is now a risk of the currency being sold incessantly if investors are left disappointed. Technical traders may observe how the Dollar Index trades within the daily bearish channel with a breakdown below 100.00 encouraging a further decline towards 99.00.

Sterling dictated by Brexit woes

Sterling was extremely volatile this week as market participants reacted to signs of the UK government giving parliament a stronger say in the critical Brexit negotiations. It is clear that Sterling remains dictated by the Brexit developments with price sensitivity set to heighten in the coming weeks as the Article 50 invoke looms. The overall sentiment towards the Pound remains heavily bearish and uncertainty should provide a solid foundation for sellers to drag the Sterling/Dollar back towards 1.2350. From a technical standpoint, the GBPUSD currently resides in a wide range, but a breakdown below the pivotal 1.2350 could encourage a steeper selloff towards 1.2050.

Commodity spotlight – WTI Oil

WTI Crude was exposed to further losses on Wednesday after the shocking increase in U.S. fuel inventories and decline in Chinese demand revived concerns of the excessive oversupply in the global markets. The resurgence of U.S. shale could undermine the efforts of OPEC and non-OPEC members in mitigating the global oversupply consequently leaving oil prices vulnerable. There is a threat of the OPEC production cut deal falling apart in the future if U.S. shale continues to pump incessantly. Although oil prices were initially buoyed by the optimism over OPEC and non-OPEC members achieving roughly 82% compliance with its production cut, the elephant in the room known as U.S. shale should limit upside gains. A breakdown below $52 on WTI could spark a further selloff towards $51.

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