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Stocks pause after ‘buy-the-dip’ makes a comeback

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Βy Han Tan, Chief Market Analyst at Exinity Group

Asian stocks were mixed Wednesday, while European indices and US equity futures drifted in and out of negative territory. The buy-the-dip charge in equities appears to be taking a breather, having already restored the S&P500 to within 0.4% of its highest-ever closing price.

Better-than-expected Q3 earnings have given risk-on sentiment a reason to stage a comeback and take the spotlight away from concerns surrounding tapering and stagflation risks, at least for the time being.

With the likes of Tesla, Intel and IBM next off the earnings conveyer belt this week, more commentary that heartens risk appetite should help seal a third consecutive weekly gain for the S&P500.

 

Inflation woes still lurking

The latest UK September CPI readings were released earlier Wednesday and came in a touch below expectations. The headline CPI registered a 3.1% year-on-year increase and grew 0.3% compared to August, while core CPI came in at 2.9%.

All three readings were a tenth lower than the median market forecast. The pound is now weaker against most of its G10 peers as money markets modestly pare back their rate hike expectations.

Notably, these latest inflation figures are still well above the Bank of England’s 2% target. This is keeping markets expecting the first in a series of rate hikes to happen next month, with a total of over 100 basis points priced in for the coming year.

Such a narrative could translate into stronger near-term support for GBP, barring rising fears of a policy mistake, if the MPC hikes too fast and too early.

 

Oil hovers near multi-year highs

Oil bulls appear hesitant in pushing Brent futures past the October 2018 top for the time being, while WTI futures are coming off slightly from their seven-year highs.

The pullback in the commodities complex has perhaps been most notable in natural gas futures so far this week, with prices in New York tumbling more than 5% in the week.

Despite the recent drop, commodities should remain well bid, considering the prevalent fears over increasing scarcity as the northern hemisphere enters the winter months.

Oil prices have enough reasons to stick to their uptrend as market conditions will continue tightening over the next couple of months, even as the risk of policy interventions from the likes of OPEC+, China and Russia potentially lead to bouts of volatility.

 

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Exinity ME Ltd, a company registered under the Laws of the Abu Dhabi Global Market (ADGM), is authorised and regulated by the Financial Services Regulatory Authority (FSRA)