Miners, Energy Sector In Focus; FOMC Minutes Helping Markets And China

European markets are starting the day in a strong upward momentum which is filtered from the US and Asian trading session. There are a number of factors which are pushing the markets higher. Firstly, it is about the strength of the miners and this is on the back of the optimism that perhaps we have formed a bottom in oil. But if you look at the fundamentals they have not changed that much with the exception of a few projects which are on hold until the price comes to a more profitable level. So, the question is how long this rally will last? Or what is the new reality for the oil price? We do think that the price of oil will struggle to stay above the 60 dollar level as this will bring on all the rigs, which were switched off. But, for now, the cloud of uncertainty has been lifted off and traders are pivoted to one way trade. So, the sector which could see a lot of momentum in the European session will be miners and energy sectors.

The second factor which has brought the Bulls back to life was the FOMC minutes released last night, which have set up a very dovish tone as we outlined yesterday. The uncertainty that what will happen or the economy is not strong enough to survive on its own without its medicine has left the room -at least for now. This has pushed the Dow Jones index above the 17k for the first time since August this year and the same goes for the S&P 500 which is above the 2K level.

These levels are very important when we are talking about the technical perspective and it also boosts the confidence for other indices and we believe this will help the DAX index and other European markets. On the flip side, if the market becomes more stable on the back of the above argument, does this mean that the Fed becomes more confident about the price stability in the market. If that is the case, will we have a deja vue again when the Fed will start talking about the rate hike again. The fact is, as we have said before, the market needs to learn to survive without its addiction and the Fed is already late in this game. Wwe cannot have this low interest rate just to keep the markets higher and keep inflating the equity markets artificially. This will not only end up in a much larger mess which no one will be able to stop, but it will have major consequence for the average joe. To fill the gab in government’s balance sheet, which is running a trillion of dollar debt is not a matter of laugh.

The third factor, which is uplifting the sentiment is the weakness of the US dollar as the Fed is no rush for the time being to Increase the interest rate. The weaker dollar is also supporting the commodity price and it will also bring the hopes that perhaps the anxieties around the corporate earnings will find their medicine as well. Given that we have kicked off the official earning season last night in the US with Alcoa (NYSE:AA), which was nothing but disaster, the focus will remain towards the corporate earnings as we march towards the next week.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Finally, investors are assured that China is stabilising and the people bank of China’s efforts are bringing some fruit. China was the primary reason which made the Fed reserve officials to go without any sleep and if we start experiencing more stable signs in that part, I will not be surprised that the Fed will change their tone in no time as they are itching to raise the interest rate.

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

Written By: AvaTrade