Market Sentiment Remains Fragile, Oil in focus

Investors are likely to remain on the defensive this week as ongoing U.S.-China trade disputes, concerns over slowing global growth and geopolitical tensions dent risk sentiment.
Lukman Otunuga

Investors are likely to remain on the defensive this week as ongoing U.S.-China trade disputes, concerns over slowing global growth and geopolitical tensions dent risk sentiment.

Asian equities were mostly lower this morning amid the caution and this risk-off mood could infect both European and U.S. stock markets later in the day. There still seems to be a thick layer of uncertainty across financial markets following the brutal sell-off witnessed last week. With rising political tensions between the United States and Saudi Arabia added to the cocktail of factors weighing heavily on sentiment, this could be another rough and rocky trading week for global stocks.

Oil prices are set to remain in the spotlight this week amid escalating geopolitical tensions between Washington and Riyadh.

U.S. President Donald Trump’s threat to severely punish Saudi Arabia if they were responsible for the disappearance of a Saudi Journalist was met with similar vows from the nation vowing to “respond with greater action”. With the current developments fuelling speculation over possible supply disruptions, oil prices remain supported.

Heightened geopolitical tensions in the Middle East, falling production from Venezuela and looming U.S. sanctions against Iran are three likely factors to push oil prices higher in the medium to longer term. Geopolitical risk factors may spark uncertainty over the global supply outlook – ultimately stimulating fears of possible supply shocks.

Away from oil prices, the British Pound extended gains on Tuesday despite Brexit talks ending in a deadlock in Brussels ahead of the EU summit on Wednesday. Although the British Pound could venture higher, this has nothing to do with a change of sentiment towards the currency but with Dollar weakness. With fears of a no-deal Brexit outcome denting buying sentiment towards the Pound, the outlook remains tilted to the downside.

Gold remains the star of the show with prices trading towards a three-month high amid risk aversion. A combination of factors ranging from falling equity markets, trade disputes, global growth fears among many others has revived the yellow metal’s safe-haven allure. The technical picture is firmly bullish on the daily charts with prices trading marginally above $1,229 as of writing. A solid breakout and daily close above 1233.50 could inspire a move back towards the $1240 level.

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