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Market Wrap
Germany’s Flash PMI for Manufacturing and Services got the day started. This flash reading is a preliminary reading and a first indication of how the sectors are likely to perform in the month ahead. All the data needs to be accumulated before the final reading, but by then, markets have generally priced in the data. European flash PMI’s were mixed, while UK flash PMI’s came in worse than expected.
At the start of the US session, the US Flash PMI for Manufacturing and Services also came in a lot worse than expected. This doesn’t bode well for the coming month as we’re expecting the Fed to start tightening monetary policy and remove their accommodative policies. China is also reducing benchmark rates signalling they need to support their economy if the US continues along this hawkish path and even more so if the Fed goes in aggressively. We may not have had a taper tantrum but we’re getting a policy shift tantrum as once again the global stock markets are dropping.
The forex heatmap shows that the commodity pairs are down today against the euro, US dollar and yen. The Swiss franc is also strong against the likes of the Aussie but is depreciating against the US dollar and yen.
If the US dollar continues to go higher and gets through the balance area between $95.50 and $97.00 the AUDUSD is going to test the swing low from early December 2021.
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The daily momentum is to the downside and price action has broken through as a significant swing low and ascending channel. Momentum tends to lead price, so bears are in control and likely to keep adding to their short position if the Fed comes across as very hawkish.
At the beginning of the year over 70% of the 500 companies within the S&P500 were trading above their daily 200 moving average. Today that number is reduced to 40% and is likely to keep going lower. This is adding to the bearish momentum as CTA’s and trend following algo’s will be looking to short more as the fundamentals stack up against these companies.
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The UK FTSE100 is still above the daily 200 EMA but is rapidly losing ground. This week is a pivotal week for PM Johnson who is coming under fire and being ousted out of his position if a report into the lockdown parties he attended comes out as damning as is being reported. One thing the markets don’t like is uncertainty and the Fed, UK government, Russia/Ukraine/NATO situations are making it hard to be bullish.
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The rising dollar has pushed on the energy markets with Brent coming down below the pivotal $86 per barrel.
