European markets and US futures are trading sharply lower as they are beaten up by the adverse sentiment which dribbled from Asia. Once again, the equity picture is becoming flimsy and risk appetite is fading. It appears that the momentum is massively skewed towards the downside and the major theme amid traders is to sell, as they do not have any trust left in the equity market.
Crude oil is under the spotlight again as it is flirting with the $30 mark. As we move or break the $30 mark, the worrisome is that we may break the previous low and more selling pressure will build up. The US inventory data released last night has confirmed that the supply glut is augmenting and this has pushed the price lower. However, we do not contemplate that much fruit in this trade is towards the downside, the big fat dollar is without any doubt skewed towards the upside. The enormous amount of blood has already been squeezed out of this trade and the only trade you want to make now is towards the downside. We are confident that under the current circumstances, we may end the year towards the upside and the gains could be nearly double.
We trust that the bottom is in place for crude and if the price does take another stab to break the previous low, it may not have that much luck, as we do envisage that the price may not be able to break the $20 mark and the bottom is the twenties.
Over in Asia, affairs with respect to economic data have shown much stronger reading. The Chinese Caxin services PMI data came well ahead of the expectations with the reading of 52.4. Now, clearly it confirms that the service sector has started to shine, but the headwind is in the manufacturing arena, which is the chief bread and butter for China. We audibly need to see this arena to become more stout and that will make the sentiment more tenacious. The Japanese consumer confidence was shaken down despite the recent efforts by the Bank of Japan and the data was still infected. It came in at 42.5 while the forecast was for 43.8.
Back in Europe, the Spanish services PMI data matched the forecast of 54.6 but it was lower in contrast to previous reading of 55.1. The euro is struggling to break the level of 1.10 and any weakness in the US sentiment could help the move to break above this point. Later in the day, we have the ADP non farm employment change data along with the ISM non manufacturing PMI. The forecasts are for 193K and 55.1.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam