Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
After a mixed session on Wall Street, Asian markets came bouncing back overnight, with the Nikkei rebounding by more than 2.5% and positive momentum has carried forward into the European session. The FTSE 100 is trading higher, inching closer to resistance at 7,300 and reclaiming some lost ground after tumbling more than 1.5%, as higher-than-expected US inflation figures this week and softer UK growth figures raised concerns about an economic slowdown.
Oil prices are trading higher for a third straight session, with Brent crude up by more than 1%, inching towards the next resistance level at $110 a barrel. However, oil is still on track for its first weekly loss in three after the precipitous drop of more than 9% on Monday and Tuesday.
Worries about supply disruptions in Russia have propped up oil prices in recent months, particularly as the EU mulls a ban on Russian oil. However, at the start of the week these fears were more than offset by demand concerns stemming from hot inflation data, China’s zero-tolerance Covid approach and growing calls for a global recession, sparking OPEC to cut its forecast for 2022 world oil demand for a second month in a row.
Now the market appears to be in wait-and-see mode amid thin volumes, as traders weigh up pressures from tight supply against a softening demand outlook, with oil attempting to regain some of the brutal drop from earlier in the week.
Cryptos are bouncing back, with bitcoin breaking above resistance turned support at the psychological $30,000 level, while ether is also enjoying strong gains. Nonetheless, bitcoin is still down by more than 55% since the November highs with losses accelerating since the start of April.
Equity market losses, concerns about inflation and instability in the stablecoin market have sent shockwaves throughout the crypto complex this week, prompting fears of a ‘crypto winter.’ However, with the Nasdaq managing to close in the green last night and the S&P 500 narrowly avoiding a slump into bear market territory (down 20% from the recent high), opportunistic buyers have scooped up cryptos at a discount overnight. $30,000 remains the key technical level to watch on bitcoin with a sustained drop below potentially paving the way for further declines.
Recent price action serves as an important reminder of the wild swings that are characteristic of the crypto market that can on the one hand can create outsized gains for traders and investors, but can also lead to damaging losses.
Gold is on track for its fourth consecutive week of declines, trading near three-month lows as the unstoppable US dollar takes its toll on the precious metal.
Although investors initially flocked to gold after Russia’s invasion of Ukraine, the precious metal has reversed most of those gains since the peak at the start of March. It has struggled to prove itself either as an inflation hedge or as a safe-haven amid the equity market turmoil, shedding more than 10% in just over two months. The allure of King Dollar and rising short-term yields have reduced investor appetite for gold, which continues to trade in a descending trendline potentially on track to retest the January lows in the coming weeks.
Meme stocks made a comeback amid the market volatility for no fundamental reason on Thursday, with GameStop Corp Class A (NYSE:GME) and AMC Entertainment Holdings Inc Class A (NYSE:AMC) staging gains. After the initial enthusiasm, these Reddit favourites pared gains into the close and are still nursing heavy year-to-date losses.
The move higher in these stocks could have been exacerbated by a short squeeze, which is when short sellers are forced to buy the stock back in order to avoid painful losses on their short positions when the market rallies.
The meme stock jump highlights the erratic price action that markets are struggling with at the moment, with sharp volatility across equities, little directional certainty and outsized moves in riskier assets like cryptos, meme stocks and tech companies.
Sage Group (LSE:SGE) reported a 4% rise in organic operating profit to £184 million, in line with analysts’ expectations and reported an interim dividend up 4% to 6.3p. Organic recurring revenue rose by 8% to £866 million. The British software business kept its full-year outlook unchanged, forecasting accelerating growth in the months ahead.
This is a decent set of first half results from the software business, which enjoyed particularly strong growth in its business cloud division which was up by 21%. Although the stock enjoyed a very strong 10-month share price performance from March last year, since the highs, shares have given back more than 60% of those gains and could be on track to re-test the March lows if the recent downside pressure persists. However, today’s report has lifted the stock to the top of the FTSE 100 with investors hoping that this could be the start of a more positive trend ahead.
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