Round trip for indices amid directionless volatility

Today’s lack of economic data, coupled with a US bank holiday has created somewhat of a mixed day for traders, where volatility has lacked direction despite tumbling oil prices. 

Oil barrels
Source: Bloomberg

Much of today’s trade has been once more intertwined with the path of crude prices, as a morning resurgence gave way to sellers in the afternoon.

The decision to lift sanctions against Iran was certainly no surprise this morning, yet in an environment where traders are looking for any reason to sell crude, the continued downside we are seeing this afternoon fits in with recent trends.

There is no doubt that France is suffering more than most recently, with the nation now dealing with a state of economic emergency according to President Hollande. A €2 billion fiscal plan aimed at stimulating job growth will hopefully chip away at the 10.6% unemployment rate.

Unfortunately, while the likes of Spain, Italy and Portugal have seen their unemployment rates tumble throughout 2015, the French unemployment situation has continued to deteriorate despite the actions of both the government and the European Central Bank.

The on-going deterioration in financial markets is continuing to impact US rate hike expectations, with the Federal Reserve funds futures now indicating that a lone September hike is the most likely event in 2016.

Crumbling stock markets coupled with falling inflation expectations have now created an environment where the Fed will find it very hard to justify any rate increase while these conditions persist.

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