A renewed wave of risk aversion rippled through the global stock markets at the end of another unstable week as an incessant decline in oil prices and recurrent fears around slowing global growth activated a sharp selloff across the board. This selloff continued into the new trading week as Asian stocks concluded depressed with Japanese and Australian shares on the brink of joining China in a bear market, while ongoing concerns around Beijing’s inability to revive it owns economic growth capped gains on the Shanghai Composite Index. These anxieties have trickled down to European stocks which have ventured deep into the red territory and the contagion may drag American equities in the same negative direction. With overall confidence in the global economy quite low, more declines may be expected throughout stocks as risk adverse investors scatter away from riskier assets.
Iran’s return into the heavily saturated international oil markets following the sanctions lift has attributed to WTI oil prices crashing to fresh 12 year lows at $28.60 during trading on Monday. The growing speculations around Iran pumping as much as 500,000 bdp of crude oil into the oversupplied markets continues to haunt investor attraction while other recurrent fears such as slowing demand for the commodity has sabotaged any opportunity for a recovery in value. With OPEC deciding last December against cutting production despite the steep declines in oil prices, most investors are betting that the cartel follows the same decision in future meetings in an attempt to prevent Iran from re-attaining lost market share and this should leave prices vulnerable to further losses.
WTI remains fundamentally bearish and with still no signs of an emergency meeting forthcoming, sellers may be encouraged to attack prices towards $25.00. From a technical standpoint, previous support at $30 may become a dynamic resistance which should invite a further decline towards the lows of August 2003 at $25.
The Eurozone is currently under immense pressure and has been in a constant bout with stubbornly low inflation while the perpetually depressed economic growth in Europe has put the European Central Banks credibility on the line. Falling commodity prices and slowing global growth continue to attribute to the factors which have sabotaged the ECB’s 2% inflation target and it seems likely the central bank may be forced to slash forecasts as investors lose faith in the ability of policymakers. It is widely expected that the ECB will keep rates unchanged on Thursday during the press conference while Mario Draghi to reiterate his dovish view on the health of the Eurozone in an attempt to talk down the Euro.
On Tuesday, the focus will be turned towards the high-risk China GDP report which is largely expected to show the Chinese economy decelerating further in the final quarter of 2015 following the slowdown in industrial productions and weaker trade. A China GDP release below 6.9% may install further woes over the global economy and elevate fears around the Peoples Bank of China (PBoC) stepping in to implement more aggressive monetary policy measures as in attempt to promote stability.
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