The rally in global stocks is taking a breather before the weekend, having posted a new record high on Thursday. Asian stocks are in the red, although South Korea’s Kospi is leading the few that are bucking the region’s downward trend. Meanwhile, US equity futures are dipping slightly at the time of writing.

Friday’s pause appears warranted by technical indicators, seeing as the 14-day relative strength index for major benchmark indices from Hong Kong’s Hang Seng index to the Nasdaq Composite index have broken into overbought territory.

Eventful week ahead

Perhaps investors are taking a moment to consolidate their thoughts, as there’ll be plenty to take in over the coming days that may dictate whether global stocks can end the month with a flourish. The week ahead features a full slate, from Big Tech earnings, to tier-1 economic data out of the US and China, and of course, the next FOMC rate decision. Any of these key events may give riskier assets added reason to climb another leg higher, or at least have a major say on the risk narrative in global markets.

Expect more record highs for stock indices

The broader argument for more upside in risk assets remains intact: more incoming US fiscal stimulus is expected, the Fed set to remain ultra-accommodative, and the global economic recovery is being put on a firmer trajectory thanks to the vaccine’s rollout. Such conditions are creating a conducive environment for riskier assets to discover more of the upside.

Such a rose-tinted outlook has even afforded investors the luxury of ignoring the wary commentary out of global leaders. US President Joe Biden has warned that the death toll could exceed 500,000 in February. UK Prime Minister Boris Johnson didn’t dismiss the possibility of the lockdown extending into the summer. ECB President Christine Lagarde signaled the risk of a double-dip recession for Euro-zone economy.

Still, in the event that any of the downside risks to the global economy materializes, that may trigger the undoing of recent gains in multiple asset classes.

Oil bulls demand more proof

Oil benchmarks are paring weekly gains, as investors curb their demand-recovery optimism given Covid-19’s resurgence and extended lockdowns in major economies. On Oil traders’ radars are the EIA crude oil inventories prints, as well as the Markit PMI readings out of the US, UK and the EU, which are all due later on Friday.

Oil bulls need to be fed signs that global demand is taking surer strides towards pre-pandemic levels before prices can register further gains and take full advantage of the supply-side interventions. Although the recovery in Oil markets since April has been nothing short of remarkable, the easiest of the advances appear already over.

The lingering downside risks to the global economic outlook, coupled with the conflicting goals among major Oil producing nations, inhibit the commodity from exploring more of its upside. The $60/bbl handle for Brent futures may be a step too far for the time being, barring a material change to the supply-demand equation.


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