Risk Tone Remains Heavy
Benchmark global equities indices have started the week under pressure as the risk off tone of recent weeks continues to inform investor activity. The Evergrande situation in China continues to paint clouds on the horizon here. The property giant missed two interest payments last week, edging closer towards a collapse which could spell big trouble for the Chinese and global economy alike. Away from that specific issue, broader concerns around the global energy crisis and the inflation spike being seen across the US, UK and European economies, is also causing concern for investors.
Expectations that central banks will be forced to tighten monetary policy in the coming months is dampening the near-term outlook for equities markets. Both the Fed and the BOE have acknowledged the likely need to begin tapering in the near term in response to the trajectory of prices in both respective economies. On a global scale, with energy prices soaring, the upward pressure on prices is becoming increasingly difficult, raising the risks of central bank intervention. With this in mind, equities traders appear reluctant to acquire fresh upside exposure, creating the room for sharp moves downward on position unwinding. Looking ahead this week the big focus is on US employment data on Friday. Any upside surprises here will further sharpen the market’s focus, creating room for a deeper move lower in equities if USD appreciates.
The sell-off in the DAX has seen the market trading back down to the 15078.83 level. This is a major support level for the index and while indicators are both in the red, it is worth noting bullish divergence here, suggesting the risk of a reversal higher. To the topside, bulls will need to see a break of 15486.96 to alleviate near term bearishness. To the downside, 14791.27 is the key level to watch.
The breakdown in the S&P has seen the market piercing below the big 4295.75 level support, However, we have seen buying kicking in at the lows which has taken price back above the level for now. With bullish divergence on both indicators we need to be aware of upside risks on a break above 4383.50. To the downside, 4236.50 remains the key level to watch.
The FTSE continues to be a tricky one here. The market is essentially still straddling the middle of the 6968.7 – 7137 range. Both indicators are in the green and with price sitting atop the bullish trend line, the outlook remains bullish here. However, we need to see some upside momentum to have any conviction in this view. In terms of broader levels, 6895.6 is the big downside marker and 7241 is the upside target for bulls.
What goes up, must come down. It’s been a wild ride for anyone trading the Nikkei recently. The market exploded higher over the last month only to collapse just as quickly. Price has come all the way back down to the 27422.9 level for now and while we are seeing some buying at the lows, focus remains on further downside, in line with bearish indicator readings. To the topside, bulls need to break back above 28356.6 to shift this view.