Market Analytics and Technical Considerations
Key Points
Last week, the S&P 500 was able to surpass the upper limit of this year’s most circumspect 12-day range, but anticipation surrounding the “Fed tempo taper” was drastically dampened.
Although there are several important event risks in the upcoming weeks, before the actual year-end liquidity draining, this week’s price action may fall victim to anticipation of the Fed and ECB decisions the subsequent week.
The Australian ASX 200 is one important indicator that will get both its revised rate decision and 3Q GDP announcement.
S & P – Bearish
Investors attempted to capitalize on the fervor of a monetary policy regime that is cooling from the Fed, and S&P Bearish US equity indices made a significant effort to revive the choppy bullish trend that began in the middle of October this past week. The remarks made by Chairman Jerome Powell, in which he attempted to strike a balance between expectations by stating that a slower pace of tightening was on the horizon and announcing that the ultimate peak rate—also known as the “terminal rate”—would be higher than anticipated, provided the initial spark for bulls.
The markets initially ran on the tempo reference, with the Dow pushing to a technical “bull market” (20 percent from structural lows) and the S&P 500 rising above its 200-day moving average for the first time since April, despite the fact that neither reference was particularly novel from the central bank’s efforts to provide forward guidance over the past few months. However, when the Fed’s preferred inflation indicator (the PCE deflator) failed to rouse any follow through despite its cooling and an NFPs beat ultimately knocked the market back, the optimism this would suggest was quickly called into question.
On a coasting “rates are slowing” theme, bulls could have taken a clear path, but now it’s a mess of nuance. Doubt will be a prominent feature of the landscape because the Fed is in its pre-FOMC meeting blackout period and cannot direct expectations while the actual decision is further out on December 14.Don’t forget that we’re also thinking about when and if a recession might happen. This concern will be highlighted by events like the ISM service sector activity report on Monday and the UofM consumer sentiment survey on Friday.
DAX 40: Bearish
The German DAX 40 index has returned to a technical “bull market” in a manner that is comparable to that of the US’s Dow Jones Industrial Average, albeit weeks earlier .The familiar draw of a recovery mentality across global equities, which appears more based on speculative appetite than genuine fundamental inspiration, provides the fundamental motivation for Europe’s largest economy. Winter will bring with it the long-standing concern that officials have had about energy prices and shortages in Europe. Economic distress will be pressed as a result of the EU agreeing to limit Russian oil exports to $60 and Brent oil continuing to trade at a premium of more than $5 per barrel to the WTI standard in the United States.
The expectation that the ECB will close the interest rate gap with the Federal Reserve, despite calls from inflation hawks and the OECD, is another economic concern. On December 15, one day after the Fed meeting, the ECB will make a rate decision, which will cause just as much anticipation and possibly even fear. In light of the premium that has been returned to the markets from their lows in 2022, a lack of information will more and more play to worry rather than optimism. Economic pressure measures should be monitored.
ASX200: Neutral
While anticipation will play a significant role in the fundamental landscapes of the United States and Europe next week, the Australian market will have direct catalysts available. The official “bear market,” which saw a 20% correction from record or structural highs, was avoided by the ASX 200, which then recovered from its shallow double bottom at the 38.2% Fibonacci retracement of the post-pandemic recovery run down to approximately 6,400.
Now that we are inside 4% of getting back to record highs, we are confronting an immediate glance at both the strength of the Australian economy and the degree of limitation (and return) on the monetary framework with a RBA rate choice, among different information. On Tuesday morning, the decision made by the central bank is expected to result in a further 25 bps increase, bringing the benchmark rate to 3.10 percent.
This will slow down economic activity, but it will also slow down in a way that would lead to a lower peak yield than many of its global counterparts (like the FOMC, whose rate is currently 4.0% and is expected to rise above 5.00% next year).That can be good for activity, but it can also stop speculative flows that want a better return. If the third-quarter GDP disappoints, which is anticipated to only slightly decrease from 0.9 to 0.8 percent quarter-over-quarter, it may indicate a more significant fundamental problem.
