Are there any impediments to the markets ?

September 5, 2023 3 min read

Markets have been on a steady and stable trajectory recently, with no immediate concerns or obstacles in sight. However, it is important for investors and market participants to stay aware of potential risks and keep a close eye on developing trends. In this article, we will discuss a few key charts that highlight some emerging risks that could impact global markets.

What is up with DXY ?

One chart to closely monitor is the dollar index chart (DXY). Despite numerous attempts to decline, the dollar index seems to be resilient and remains at a level of 104.15. In the past couple of days, it has even shown signs of climbing higher towards 104.5. If the dollar index breaks out and starts to rise significantly, it could spell trouble for emerging markets and regions dependent on liquidity flows and risk assets.

How does DXY correlate with Indian Markets ?

A strengthening dollar index can negatively impact emerging markets due to increased costs and reduced competitiveness. Additionally, it could lead to capital outflows from these regions as investors flock to the relative safety and higher returns of the US market. 

Rising Crude Oil Prices !

Another area that demands attention is crude oil prices. Crude oil has been experiencing some interesting patterns, forming a range between around $72 and $87. However, it appears that we may be breaking out of this range soon. When examining the long-term chart, we can see a significant move from the COVID bottom of $20 to a high of $140.

Recent geopolitical tensions, such as the Russia Ukraine conflict, have led to a consolidation in crude oil prices. However, a new intermediate leg could be starting, potentially pushing prices higher. If we see a meaningful breakout above $91, it could trigger a wave of bullish bets on crude oil both globally and domestically. This, in turn, could impact various sectors and economies that are sensitive to oil prices.

What about the Commodities ?

Commodities, as a whole, are also showing signs of an upward trend. A prime example is the sugar market, which has been steadily rising and breaking out of long-term chart consolidation. If commodities continue to climb, it will inevitably lead to global inflationary pressures.

Many countries already find themselves at a point where further interest rate hikes could significantly impact demand and economic growth.

With inflation running high and interest rates near their upper limits, there is a delicate balance that needs to be maintained. If the US, for instance, decides to raise interest rates to 6%, 7%, or even 8%, it could force many highly leveraged investments to unravel. The burden of paying higher interest rates was not part of the original plan for these investments, and it could have severe consequences for global markets.

Irrespective of what happens in the markets, practitioners of momentum investing are always at peace because of the non discretionary nature of this investing style. Momentum strategies ride the best trending stocks at all points in time thus making effective use of capital.

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    Are there any impediments to the markets ?