MARKET VOLATILITY JUMPS AS TRADERS’ WORRIES ON GROWTH PERSIST
World stocks declined sharply today as investors continued to worry about the health of the global economy and bond yields. In Europe, the DAX and Stoxx declined to the lowest levels in 20 months. The two lost 170 and 50 points respectively. In Asia, the Nikkei, Hang Seng, and Shanghai lost 1000, 950, and 150 points respectively. Meanwhile, US futures recovered after the inflation numbers were released. The S&P pointed to a slight gain of 5 points while the Nasdaq may shed 9 points when it opens. Meanwhile, the S&P volatility index rose to the highest level in six months. The VIX is commonly known as the fear index and reflects how investors are pricing options at the CBOE.
Crude oil price declined sharply after data from the American Petroleum Institute (API) showed that inventory was building up. The institute said that the inventories had increased to 9.75 million barrels. This was higher than the 2.62 million barrels that traders were expecting. It was also higher than last week’s build of 907K barrels. Later today, Energy Information Administration (EIA) is expected to show that inventories rose by 2.62 million barrels. In recent weeks, the price of crude oil has moved higher as traders wait for the US sanctions on Iran. In addition, a report by Washington Post said that the crown prince of Saudi Arabia personally ordered the killing of a critical journalist. This will likely lead to escalation between the US and Saudi Arabia. Today, OPEC’s secretary general, Mohammed Barkindo said that some of the factors affecting the price were out of control of OPEC.
The US dollar weakened against the other peers after Donald Trump criticized the Federal Reserve. In a rally yesterday, the president said that the Fed had gone crazy. He then doubled down saying that the Fed had gone ‘loco’. The declines in the USD continued after consumer prices data showed that inflation was not growing as traders had expected. The CPI in September rose at an annualized rate of 2.3% which was lower than the 2.4% traders were expecting. In August, the CPI rose by 2.7%. The core CPI which excludes the volatile food and energy prices rose by 2.2% which was lower than the 2.3% traders were expecting. The initial and continuing jobless claims disappointed too. The initial claims were at 214K, which was higher than the 206K that traders were expecting while the continuing claims were at 1.66M, which was higher than last month’s 1.656M.
The price of Brent reached a high of $86.62 on Tuesday last week. After that, it started moving down and today, it reached an intraday low of $80.9 as traders started to worry about the buildup of inventories. As the XBR/USD pair declined, the MACD reached the lowest level in more than a month while the strength of the double EMA shown on the hourly chart below eased. The pair will likely consolidate within this level until traders receive the EIA inventory numbers.
The price of gold rose sharply today. This happened because of the overall weakness of the USD, which accelerated after Donald Trump called the Fed crazy. While the US president has criticized the Fed before, this was his toughest language. The XAU/USD pair reached an intraday high of 1204, which was the highest level since Tuesday this week. The four-hour chart shows that the pair has been trading within a narrow range in the past few weeks. The pair seems headed towards the important resistance level of 1210.
The EUR/USD pair rose today to an intraday high of 1.1600. This was the highest level since Tuesday last week. After establishing a floor this week, the pair has started a strong upward trend as evidenced by the Average Directional Index, which is currently at 33. It is also evidenced by the Bollinger Band and the double EMA indicators as shown below. This means that the pair will likely continue moving up, until it finds an important resistance. This will probably happen at the 1.1700 level.