Sintra Signing Out

With the ECB’s annual Sintra Forum having come to a close, it’s worth doing a roundup as we heard quite a lot of key information that traders should consider. Fed chairman Powell, ECB head Lagarde and BOE governor Bailey each gave their key insights into their respective domestic economies and the global economy alike, giving their outlook for monetary policy as well as their general thoughts on markets near-term.

Key Quotes from the Meetings

  • Powell: "We understand better how little we understand about inflation.
  • Powell: “What we don’t know is whether we’ll be going back to something that looks more like or a little bit like what we had before -- we suspect it’ll be kind of a blend. We’re learning to deal with it.”
  • Bailey: “It’s how you deal with a series of large supply shocks with no air gap between them, which of course feeds through into expectations. Put them all together, they’re not transitory in the traditional sense of the term.”
  • Lagarde: “There are forces that have been unleashed as a result of the pandemic as a result of this massive geopolitical shock we are facing now that are going to change the picture and the landscape within which we operate."
  • Powell: “Is there a risk we would go too far? Certainly there’s a risk. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability.”

Inflation Fears Paramount

What is very clear from these comments, and the tone of the meetings in general, is the level of concern over inflation and the emphasis on the need for tightening. This general outlook clearly explains the heavy tumble we’ve seen across risk assets this week. With central bankers showing little sign of backing away from aggressive tightening approaches (well reflected in the last quote particularly), the near-term outlook for stock markets appears vulnerable to further downside.

Technical Views

MSCI World Index

The MSCI World Index has been grinding steadily lower this year, reflecting the bleaker economic outlook which is impacting global stock prices. Currently, the index is sitting in the lower portion of the bear channel, held up by support at the 58.62 level. If this level breaks, the next support to note is down at the 54.83 level. To the topside, bulls need to see a break of the 61.36 level to affect a shift in view near-term.