Market Analytics and Technical Considerations
Key Points
Since the seasonal impact of the US Thanksgiving holiday on both US and international markets has passed, liquidity will turn around from this week to next.
The upcoming week’s economic docket is jam-packed with important inflation numbers, indicators of economic activity, and the perennially popular NFPs.
The overall “risk propensity” trend has risen, although this appears to be more underpinned by erratic cyclical patterns than by underlying fundamentals.
Fundamental S&P 500 Prediction: Negative
Liquidity will return one week from now to a market that has seen both an occasional and underlying concealment of instability. There is no guarantee that quiet will prevail as we approach the holiday-filled year-end period, which typically heightens expectations for a tapering off of activity and participation.
In point of fact, in light of the lingering effects of rapid financial market tightening, the unresolved and converging threats of rampant inflation, recession risks, and Keeping your enthusiasm high can be costly. The drop in implied (or “expected”) volatility for the benchmark S&P 500, the most traded index from the world’s largest market, reflects the choppy recovery over the past six weeks.
The remarkable enthusiasm that followed the modestly softer pace of CPI at the beginning of the month or this week’s FOMC minutes, which stated that a slower pace of hikes is likely to be ahead, are examples of corrections in prevailing trends. There have also been glimmers of support in the headlines. That might be enough for somewhat more extending, however it doesn’t address the establishment for a sincere assembly pushing ahead.
The PCE deflator—the Federal Reserve’s preferred inflation indicator—the Conference Board consumer confidence survey, and November NFPs are just a few of the data points that could attract attention on the US docket over the next week .However, it is highly unlikely that the data will significantly reduce the Fed’s terminal rate or prevent a recession. This skews the potential impact of the data reestablishing the current bearish trend in contrast to the headlines’ projection of relief.
The FTSE 100’s fundamental outlook is as follows: Neutral
In just a few short weeks, the OECD warned that the world’s fifth-largest economy was suffering from internal and external (energy costs) pressures, the Chancellor of the Exchequer issued his own economic warning alongside a tighter budget, and the Bank of England warned of a painful UK recession.
However, merely observing the FTSE 100 would not give you that impression. We have overlayed the UK index with the 10-year/2-year Gilt yield spread as an investor-monitored economic forecast using a more popular US gauge. Although this is not as frequently used for UK markets, the idea is similar.
The general recognition of future economic constraints is increasingly reflected in the pressure behind the longer-term paper, excluding the “mini budget” disaster of September. Is it possible for the market to continue defying this generally anticipated trend of economic hardship? In addition to housing inflation, consumer credit levels, and a private retail sales report, the economic docket won’t have many provocations. As a result, the market may be vulnerable to shifting global sentiment or unpredictable headlines.
The DAX 40’s fundamental outlook is as follows: Negative
As noteworthy as the uniqueness in value execution and financial projecting is for the UK markets, I think the difference from the significant central area Euro-region benchmarks is in a class all their own. The 7-week and more than 20% charge for the FTSE, despite the fact that Germany’s DAX 40 is further from its beginning-of-the-year highs than the FTSE, suggests optimism that is far removed from the general fundamental backdrop.
Despite the official forecast for a tepid 0.5% growth in the US, the Eurozone received the strongest warning from the OECD regarding the economic threat in 2023.In order to stop inflation from getting any worse, the same group had also urged the ECB to close the rate gap with the US central bank. Inflation figures for the German and Eurozone, sentiment surveys for the entire region, and employment updates are all on the agenda for the upcoming week. If we include the indication of a forthcoming recession in these data, loosely held confidence may begin to seriously decline
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The Nikkei 225’s fundamental outlook is as follows:
The local capital market in Japan can be somewhat closed off. Although it is still susceptible to the ups and downs of global sentiment, the severity of the “risk off” has decreased, particularly with 2022.Given that the Bank of Japan has kept its promise to keep interest rates anchored at their virtual zero mark, this is helped by a local investment appetite that values higher capital gain potential over the financial system’s relentlessly deflated baseline yield. However, the system’s capital rotation cannot sustain the markets’ buoyancy forever.
The Nikkei 225 could not only move back towards the bottom of this year’s range (down to 25,150 – 24,500), but it could actually push the index into “bearish” territory, which it has so far been able to avoid. This would occur if there is a significant drop in global sentiment that exceeds the year-end seasonal expectations, or if Japan’s economic glow is snuffed out. The Japanese docket will provide data on retail sales and unemployment on Tuesday, industrial production and housing starts on Wednesday, and 3Q capital spending on Thursday, all of which are considered top event risk indicators.
