- S&P 500 | Bear Market Rally
- FTSE 100 |Stagflation Risks
S&P 500 | Bear Market Rally
Little respite for US equities as moves higher are quickly sold into. While markets saw a brief period of hope as Chair Powell firmly pushed back against a 75bps rate hike, this failed to prompt a significant reversal. Keep in mind, the Fed are still moving aggressively and quantitative tightening (bearish risk assets) takes place next month. Selling rallies remains the bias for now. At the same time, it is important to keep an eye on US fixed income, particularly the 10yr yield which is testing a major resistance zone with the 2018 highs in focus at circa 3.25%. I mentioned previously that I am less bearish on the S&P 500 and with the index looking to put in a hammer as we close the week, that might be something to work with for another move towards 4300. However, should we close below 4050-60 then that view will have to be reassessed, given the heightened risk a drop towards 3800.
S&P 500 Chart: Daily Time Frame
FTSE 100 |Stagflation Risks
A rather sobering outlook from the Bank of England to say the least. While there was initially a hawkish twist with a 6-3 vote split. The three dissenters voting for a 50bps increase. The accompanying statement was extremely dovish, not only the MPC see double digit inflation by the end of the year, they also see growth contracting from the turn of the year. In other words, stagflation. The BoE have all but said, markets are far too aggressively priced for rate hikes, as they see inflation over the 3Y horizon to significantly undershoot their 2% target based on current market expectations of rate hikes. In turn, while this has seen the Pound come under significant pressure, this does provide an undertone of support for the FTSE 100. Keep in mind, 2/3 of the revenue generated among FTSE 100 companies are from overseas, thus repatriated profits are worth more when the Pound falls. That being said, not even the sell-off in Sterling has been enough to shield the FTSE from the current market turmoil.
Going forward, while inflation data will remain high on the agenda, with the BoE worried about the cost of living squeeze. UK assets will become more sensitive to growth data going forward, including PMIs, retail sales and labour market data.
A vicious rejection from the 7600 handle and thus, risks remain firmly tilted to the downside. A close above 7620 would be needed to alter that outlook. But for now, the path of least resistance is lower with eyes on support at 7340-50. A break below support leaves little in the way until 7200.
FTSE100 Chart: Daily Time
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