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Current Futures: Dow +25.00, S&P +2.80, NASDAQ +4.50
Equity markets appear unable to break decisively, in either direction, and have been this way for most of June trading sessions. Earlier on Thursday, Asian markets traded flat on a very thin volume, while European shares have moved only side-ways. This was the case during U.S. trading hours, where the major indexes closed barely under the break-even line.
In Europe, raw material companies led the declines, after the commodity sector pulled the European markets higher over the previous two day of trading. Travel companies were today’s top performers as some investors speculate that Thomas Cook may be taken over by a rival company. The European banks managed to stay in the green, being among the only sectors able to achieve this on Thursday morning. As a note, both the German Dax and the U.K. FTSE recorded very thin trading volume.
Even though some investors think that the global recovery is over, there are still some threats that can turn the current expected V-shape recovery (fast contraction, fast recovery), to a W-recovery (fast contraction, a period of economic recovery, then fast contraction once again). As TheLFB-Forex.com Trade Team noted over the last few weeks, commodities, mainly crude oil, pose the biggest threat now on the global recovery theme. Since March’s lows, crude oil has more than doubled its price from $32.70 to the current $71.50 per barrel, while metal commodities posted double-digit gains over the last three months.
Academic studies have shown that a rise of 10% in the price of crude oil has the potential to shed up to 0.5% off the global economy growth forecasts over the medium to long term. This happens because oil has an inelastic demand, meaning that no matter how the price of oil changes, the demand side seems to remain constant, or at least move in only a small amount, way. Any rise in the price of crude oil is directly reflected in the economy, since crude oil is the world’s primary source of energy, without too many real alternatives. The main problem comes in that any gain in the commodity market is directly reflected in consumer’s pockets, leaving consumers with less money to spend on goods and services – something not needed or wanted at a time that the economy is almost running out of credit.
Overnight, the Japanese Nikkei lost 10.16 points (0.10%) to 9,981.33. The Australian S&P/Asx gained 22.80 points (0.57%) to 4,047.20. The U.K. FTSE declined 9.02 points (0.20%) to 4,427.73, while the German Dax added 10.45 points (0.21%) to 5,061.63
Crude oil for July delivery was recently trading at $71.50 per barrel, higher by $0.20.
Gold for July delivery was recently trading lower by $0.80 to $953.50.
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