Swissquote Bank: Equity selloff eases, oil rebounds
By Ipek Ozkardeskaya, Senior Analyst, Swissquote Bank
The selloff in US and European equities continued Monday, yet the size of the slide wasn’t alarming, and the Dow Jones index could even eke out a small 0.08% gain, as energy stocks led gains.
Occidental Petroleum was one of the biggest gainers, with a 5.7% jump at yesterday’s session to the highest levels in more than 3 years as crude oil reversed the early negative trend and spiked near $115 per barrel on news that the EU came closer to banning the Russian oil imports.
Investors kept unloading the technology stocks however, with Twitter losing another 8% on rumours that Musk is now looking for a cheaper deal to buy Twitter, as he is concerned that the spam accounts certainly make up more than 5% of the total accounts.
US and European futures hint at a positive start Tuesday.
Reflation
The recession talk remains the major catalyzer of the market moves, and migration from tech to value continues. The latter explains why the FTSE 100 is 5% up ytd, while the S&P500 is at the cusp of the bear market.
Technology stocks have a relatively heavy weighting in major American indices. Apple, Microsoft, Amazon, Alphabet and Tesla make up to more than 20% of the S&P500.
Therefore, the positive divergence of the FTSE 100 will likely remain in play as long as the energy prices remain upbeat. Plus the pound has cheapened almost 10% since the beginning of the year – making the money-making British energy companies look even more appetizing for investors.
In the FX
The US dollar is softer across the board, but the dollar index consolidates near a 20-year high. Due today, the US retail sales is expected to have improved in April. A good figure will likely remain the Fed hawks in charge of the market, while a soft read would only dampen the mood on the idea that the economy is softening but there is nothing the Federal Reserve (Fed) could do about it.
Else, Eurozone will reveal its latest GDP update (0.2% in Q1). The second quarter will likely be worse due to rising energy costs and the war on the continent. The European Central Bank (ECB) is expected to start raising the rates by this summer to tame inflation, and a hawkish shift in ECB polivy could help the EURUSD gain strength before testing parity.
But where the EURUSD would dip depends on if, and by how much the dollar strengthens from the actual levels. A slower global selloff could ease the positive pressure on the dollar and help the EURUSD recover before seeing parity. But if the global positive pressure on the dollar continues, parity will be the next step for the single currency.