In the US, the “January Effect” and high-risk sentiment did not last long as recession fears again set in. The latest warning came from the International Monetary Fund which advised the global Gross Domestic Product will decline compared to 2022. A major concern for economists is the economic slowdown in China, which also continues to release disappointing economic data.
The largest declines were witnessed in Crude Oil and Natural Gas, which is a direct result of recession fears. The price of Crude Oil declined by almost 4%, which is the largest decline since November 23rd, and Natural Gas plummeted by 5.50%. Economic contraction or a fully developed recession is known to pressure prices as the level of demand declines.
The price can only be stabilized by producers if they reduce supply to level the current demand. OPEC confirmed during yesterday’s meeting they would not reduce supply this month. Currently, Crude Oil is receiving signals from technical analysis indicating a further decline, whereas Natural Gas is oversold on most Oscillators.
Natural Gas is now trading at a 12-month low while Crude Oil is at a 2-week low. The lower commodity prices can supply companies and lower their expenses, however, this is not likely to be positive if economic growth declines as expected, and interest rates remain high. US equities this morning are higher when looking at futures, however, all 3 US Indices came under pressure yesterday. This is a very different picture in comparison to European stocks, which we will look at in the section below.
The US Dollar this morning is declining in value as most major currency pairs look to form a full price correction. However, the Dollar is still higher than yesterday’s opening price. Volumes are returning to their traditional levels and investors are turning their attention to this month’s US employment figures. Currently, investors are pricing another 0.50% rate hike in February and then a pause. However, this will largely depend on the employment and inflation figures over the next month.
The NFP figure is expected to be less than the previous month but still above 200,000, while the Unemployment rate is expected to remain at 3.7%. If the figures do not show a stronger decline in the sector, then the Fed will stick to its stance of expanding its restrictive monetary policy.
DAX
The DAX yesterday ended the day 2.10% higher as expected and mentioned in yesterday’s market analysis. The price this morning has opened on the bullish price gap which again is illustrating the bullishness in the European market and is currently hovering around yesterday’s resistance levels.
Yesterday the bullish momentum found resistance at the 14,286Euros level, which is only 10.00Euros higher than the current price. If the price is able to form a bullish breakout, the next resistance point is at 14,610Euros which is significantly higher and allows enough room for further trades.
Technical analysis on the daily timeframe is currently providing bullish signals. The Relative Strength Index is above 50.0 and below the overbought zones. This signals that buyers currently have control of the market. The Stochastic Oscillator has crossed over upwards which again indicates bullish price movement. However, traders should be cautious of the pivot level at 14,132 which can trigger bearish signals. The Pivot Level as a stop-loss level or as a bearish indication.
Today the US PMI, JOLTs Job Opening and FOMC Meeting Minutes are due to be released in the afternoon. Even though this is related to the US, it can have an effect on the global equities market. Investors will be looking at how the release will affect the monetary policy and also the global economic picture. For example, are we indeed moving toward a recession?
As mentioned yesterday, the DAX and European stocks have been supported by multiple factors. The index has since been supported by further economic data coming out of Germany. Yesterday the Business Activity in the manufacturing sector rose and experts have advised that the economy has solved a lot of their supply chain issues. Though possible Russian backlashes can derail these factors. Germany also released their Prelim Monthly CPI which supported a weaker monetary policy and a lower-than-expected Unemployment Change. Both announcements supported the Index in the short term.
Technical Analysis Video - Natural Gas
Summary:
- Crude Oil and Natural Gas significantly decline due to China and recession fears.
- OPEC signal no supply cuts on the table just yet.
- DAX continues to obtain bullish signals from technical analysis.
- EU stocks supported by the latest EU CPI figures and economic data.
- Currency traders turn their attention to Friday’s US employment figures.
