Week 7 of the year 2016 didn’t bring any spectacular changes in worldwide markets. The main headlines were still oil selloffs and the US dollar developments, with global stock levels dropping quickly for the second week in a row. The impact of global and emerging markets on the U.S. indexes was not very big this week, mainly going in the same direction as set at the beginning of February.
European stocks dropped for the last 3 sessions, much like they did the entire previous week. The Stoxx Europe 600, for example, dropped 2, 1%. The main reasons behind these drops are sell-offs in commodity goods, more precisely oil, and a stronger Euro currency due to the recent developments in the U.S. economy. Currently, the EUR/USD is trading just below the strong 1, 13 line, keeping its gains over 1, 10 for the first time in recent months.
Asia is not a very different story – stock prices are going down for the second week in a row. After their surprise rate cut, the Bank of Japan saw the 10-year Bond drop in negative interest rate for the first time in history. The USD/JPY, the main correlation between the U.S. economy and that of Japan, shifts lower session after session, currently sitting at 112.41. A stronger Yen is not good news for Japanese companies relying on exports, so Toyota, Nissan and Sony closed down between 6.1% and 7.2%.
The effects of the foreign markets on the U.S. economy were small in recent times. Oil prices and drops in commodities affected U.S. stocks much more, with new losses in the energy sector being almost a daily occurrence. The biggest concentration at the moment is on new economic data from the United States in order to see when and if the FED will raise its rates again. Carry trades seem to have more and more popularity among traders, especially pinning the dollar against currencies with negative interest rates such as the Euro and the Yen.
To sum up, we’re looking at another week of moderate losses and commodities crashing. This short-term trend is the main driver in markets – will it continue, bottom out, or reverse?