The focus was on central banks, creating scary-looking charts

Carlsquare

20. dec. 2021 | 5 Læsetid

Friday’s stock trading in New York ended in about minus 1% for the S&P500 index, influenced by the Fed’s signals of several rate hikes in 2022 and omicron. There have been twenty-one thousand cases of omicron infection recorded in New York state, which was hit hardest in the United States during the pandemic in 2020.

In this weekly trading note from Carlsquare, we elaborate on the following topics, indices, and stocks:

The scary technical situation in S&P 500
Risk also found on the downside in Nasdaq
Yet another scary looking chart for Alphabet
Tesla is still in trouble
Cantral banks did not manage to create volatility in EUR/USD
Scarry looking Doji in gold
Big move ahead for OMXS30?
DAX may join in on the big move

As can be seen below, the short-term trend is down for virtually all stock market indices, except the FTSE (London Stock Exchange), which contains many food and pharmaceutical companies with lower cyclical exposure. It could indicate that investors have begun to discount an economic slowdown, combined with slightly higher interest rates. But it could also be a take profit-related rebound after a long period of price rises.

Source: www.di.se, www.marketwatch.com

Investors’ primary focus, apart from omicron, has been the central banks’ announcements last week and, in particular, the Fed’s. The US has significantly higher interest rates than the Eurozone and is also leading the way for now. The Bank of England is closer to the Fed in its interpretation with a 0.15 percent interest rate hike last week, while the ECB seems to want to continue stimulating during 2022 and possibly longer than that. Could it be that support for the Eurozone garlic belt (such as Italy and Spain, and to some extent also France) is guiding the ECB’s policy decisions? Keeping all the major countries of the monetary union happy might be more important than anything else. The difference with the Fed’s message could argue for higher interest rate differentials between the US and Europe going forward and, above all, continued low-interest rates in Europe. But also Fed seemed hesitant, giving one message in their rate decision followed by Powell mitigating it at the following press conference.

Source: Refinitiv Eikon

Credit Default Swap prices for Italian 5-year government bonds have gone up slightly in recent weeks. However, from a longer-term perspective, the movements are small. In 2012 and 2013, CDS prices of Italian 5-year government bonds were quoted just above 500. The same is for the French and Spanish CDS.

As for economic data, they are currently pointing to a modest slowdown. US industrial production in November, which rose by 0.5% against an expected 0.6% month-on-month, point to this. Similarly, in December, the Eurozone’s Flash composite purchasing managers’ index fell to 53.4 from 55.4 in November. At the same time., the recovery in US employment continues at a reasonable pace.

President Biden’s stimulus program, with a strong focus on infrastructure in various forms, is about to be rolled out in the US, though peak spending will occur in 2023. There is a debate in the US about the impact of this stimulus program. Supporters point out that the program will support improved productivity in the US business community. Critics argue that these stimulus measures might boost an already high inflation rate.

Fed’s Powell has painted himself into a corner by saying that some of today’s inflation is not transitory. It also means the Fed will have to act by raising rates in 2022 unless they want to lose their credibility, all else equal.

Source: Refinitiv Eikon

As measured by US 10-year Treasury bonds, the trend in yields right now is downward. The US 10-year yield fell seven points on Monday, December 13, to 1.41 percent before rising to a high of 1.46 percent on Wednesday evening on the Fed’s interest rate announcement. On Thursday and Friday (16-17 December), the US 10-year yield then fell back to 1.41%. In isolation, the rise in interest rates does not appear to be a significant threat to equity valuations now.

The charts are looking scary with falling momentum. May the sentiment turn, or this can be a dull Christmas for long traders.

S&P 500 closed Friday, December 17, down by 1.0%. The index closed down of a bearish rising wedge formation, indicating that levels around 4 750 can be next. A trigger is if both MA50 and MA100 break on the way down. Note how the index rebounded intraday off MA50 on Friday.