Risk Aversion Growing
Equities markets have had a somewhat precarious start to the week with most indices trading in the red, as of writing, given the resurgence in COVID concerns. While the open this week was less dramatic than the sell off seen at the start of last week, nonetheless, there is a similar pattern at play. Rising levels of variants, concerns over their impact on vaccinations, the prospect of extended travel restrictions in Europe and the threat of fresh lockdowns post-summer, are combining to create a fairly negative tone over the European open on Tuesday.
Risk appetite is also being impacted by news of the latest regulatory crackdown by the Chinese government. Following the government’s intervention in the crypto markets earlier in the year, Chinese regulators are now cracking down on various sectors of the Chinese economy which depend on overseas funding, such as education.
Looking ahead this week the focus in US equity markets will on earnings season with over half of the S&P due to report this week. The main event, however, will be the FOMC meeting tomorrow night. With expectations shifting in favour of a hawkish message, the potential for further volatility in equities markets is elevated.
The recent failure in the DAX holds the potential to pave the way for a deeper correction lower if price continues to move below the 15486.96 level. With RSI and MACD both broadly neutral, there is plenty of room for further momentum either side of the market if we see a directional break this week.
The S&P started the week by breaking out to fresh highs though, the index has since retraced lower. With MACD and RSI both bullish, however, the focus remains on further upside while the 4383.50 level holds in place. Below there, 4353.25 and rising trend line support are the next areas to watch.
The FTSE is seeing volatile flows this week with the market probing deeply below the 6968.7 level before reversing to trade back above the level. With MACD and RSI both negative, however, there is risk of a further drop lower, putting focus back on the 6895.6 and 6806.5 levels.
The latest test of the bear channel top has seen selling kick in once again, turning the Nikkei lower. With RSI and MACD negative, there is risk of a further drop unless bulls can defend the 27422.9 level support.