After global markets recorded sharp losses on the recent Black Monday a wave of cautious recovery saw them regain some of the largest losses since the financial crisis. Oil spiked suddenly at the end of last week, topping ten percent, and there were other factors that contributed to the recovery; the interest rate cut by the People’s Bank of China, the release of positive US data and the entry of opportunistic investors taking advantage of a market trading at lower prices.
The current rally seems to be cautious and it's very important to keep an eye on the economic releases ahead, especially those from the US and Asia
However, fears linger of another Chinese collapse. A mix of expectation and caution is the prevailing mood.
Hope and caution
The Shanghai Composite index opened this week with a drop of just over 3% after offsetting a significant part of its losses at closure on Friday.
US stocks ended largely even last Friday, influenced by relatively positive economic data. The Dow Jones and S&P 500 declined by 7.65% and 6.34% respectively, on Black Monday. However, the recovered those losses, ending the week up, topping one percent.
European stocks ended a turbulent week with modest gains on Friday,Germany’s DAX lost over 10% but eventually closed up 5%
Middle East equities had a tough week, despite starting in positive territory.
Saudi Arabia’s finished the week close to 2 percent up – the first positive weekly close after five weeks of consecutive declines Abu Dhabi, concluded the period down more than 1% but had sunk by almost 10 percent after Black Monday
Dubai and Egypt also closed slightly lower after erasing big losses during the previous days.
Oil prices rebounded sharply by more than 16% on Thursday and Friday, posting the biggest daily gains since March 2009
Middle East perspective
For an analysis of the global markets after Black Monday Daleen Hassan spoke to Nour Eldeen Al- Hammoury, Chief Market Strategist at ADS Securities in Abu Dhabi.
Daleen Hassan: “Let’s start with the stock market and the wave of cautious recovery. Can we say that we have exited the panic stations of recent days?”
Nour Eldeen al-Hammoury: “Its possible to say that the panic is over or has at least eased, especially as most of the global equities trimmed their loses incurred on that Black Monday. However, the current rally seems to be cautious and it’s very important to keep an eye on the economic releases ahead, especially those from the US and Asia, which will be the key in the coming days and weeks.”
Daleen Hassan: “What are the levels to watch in the global equities in the coming weeks?”
Nour Eldeen al-Hammoury: “Well, for the Shanghai Composite Index, traders need to watch the upcoming resistance area, standing at 3,373 points, which was breached last week into the down side . The index is trying to retest this area. The outlook remains negative, as long as the index stays below that resistance.”
“As for the Dax 30 in Germany, we are looking at 10,500 points and 10,616 points as a solid resistance area, which should be watched very carefully and there, also, the outlook remains negative as long as the index stays below that resistance.”
Daleen Hassan: “How could the economies in the Middle East be affected the by sharp fluctuations stemming from China? And how would you describe investors’ confidence in the markets?”
Nour Eldeen al-Hammoury: “The panic in Asia could be positive at some point to the region, especially after the Chinese Yuan devaluation, as cost of Chinese goods will be less. Therefore, as long as demand continues from the Middle East this should be a positive factor for the region, especially if prices keeps in declining.
“The GCC region is still safe despite the fact that the uncertainty remains. But rising crude oil last week eased last week’s panic mode and this is what we have seen at the beginning of the week, when the GCC and Middle East equities rallied slightly.”
Daleen Hassan: “Moving on to the oil markets and the significant hike in prices, can we expect that to continue and should we focus on the Gold/Oil Ratio?”
Nour Eldeen al-Hammoury: “To explain, the Gold/Oil Ratio is a way of showing how many barrels of gold you can buy when you own an ounce of gold. The pattern that we have seen last week looks like the pattern that we saw in January,
“Last week the Gold/Oil Ratio reached the same level of January around of 25.30 before declining again, leading oil to rise significantly on Thursday and Friday.
“Meanwhile most of the fundamentals are already priced in, as we have said in previous episodes of the show, therefore we need to look at new fundamentals and catalysts that could drive the prices in the coming weeks. But for now, all we can say is that signs of stabilization are growing gradually.”