Daily Stock Market Update: Risk Appetite Supports Equity Gains – Jan 25, 2016

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Commodities and equities staged a strong rebound towards the end of last week, thanks to the pickup in risk appetite on the prospect of additional monetary stimulus. According to European Central Bank head Mario Draghi, they won’t hesitate to dole out more easing measures in March if the current slump in inflation and growth persists.

The S&P 500 VIX, which is considered a gauge of market fear, edged down by 4.35 points to 22.34 (-16.30%) to reflect a bump up in investor confidence. Global equities closed higher, with the S&P 500 up by 37.91 points to 1,906.90 (+2.03%) and the Nasdaq up 119.1 points to 4,951.2 (+2.66%) on Friday. The Euro Stoxx 50 was up 86.81 points to 3,030.73 (+2.95%) and the London FTSE was up 126.22 points to 5,900.01 (+2.19%).

Futures were also in the green, as S&P 500 index futures for March delivery are up 1.25 to 1,900.25 (+0.08%) and Nasdaq index futures are up 0.25 points to 4,247.75 (+0.01%). Euro Stoxx 50 index futures are up 99.5 points to 3,033.5 (+3.39%) and London FTSE futures are up 14 points to 5,891.5 (+0.20%).

FOMC, RBNZ, and BOJ decisions lined up

The next few days could once again prove crucial for market sentiment and futures price action, as three major central banks are set to announce their policy decisions. The FOMC is set to get the ball rolling on Wednesday, although no actual policy changes or rate hikes are expected for now.

In fact, the US central bank might shift to a less aggressive tone, given the developments in the financial markets so far this year. Fed officials might reiterate that they’ll tighten monetary policy on a gradual basis, possibly leaving investors to push back their rate hike expectations past March this year.

No actual rate changes are expected from the Reserve Bank of New Zealand as well, especially since their economy could benefit from the recent depreciation of the Kiwi. However, the Bank of Japan might take on a more dovish stance, as some officials had been quoted saying that they’re open to expanding the stimulus program.

Commodities looking steady so far

Crude oil prices have been on a tear since the middle of the previous week, although there appears to have been no other catalyst apart from short-covering or profit-taking. WTI crude oil is back up to $32.38/barrel (+0.68%) while Brent crude oil is trading at $33.15/barrel (+1.02%). Gold is also benefitting from the risk-off flows and is up to $1,101.80 (+0.48%). US crude oil inventories data is lined up for this week.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.