Market Sentiment Continues to Improve as Early-February Fears Recede

Trader confidence returns

- Market sentiment was dented earlier this month but the latest price moves suggest it is now returning.

- Looking ahead, much will depend on a batch of forward-looking indicators scheduled for the next few days.

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Market sentiment improves

Traders have become more confident in the markets over the past few sessions after a poor start to February. Taking Wall Street as an example, the Dow Jones Industrial Average dropped from a high of 26,616.71 on January 26 to as low as 23,360.29 on February 9; a drop of more than 3,000 points. Since then, howere, a rally has taken the benchmark index back up above 25,000 as investors have committed more money to the market.

Dow Jones Industrial Average Price Chart, One Hour Timeframe (January 25 – February 20, 2018)

Chart by IG

Similarly, the VIX “fear index” that measures the volatility of US stocks has eased from the highs touched earlier this month and the US Dollar, as measured by the Dollar index, has bounced modestly after sliding to its lowest level for more than three years as US Treasury note yields have climbed.

Looking ahead, there are plenty of forward-looking indicators on the calendar that could help determine the future direction of asset prices. The ZEW survey of German expectations in February, released earlier this session, came in above the predicted level but lower than in January.

Indicators due

Now attention turns to the Euro-Zone consumer confidence release due later today, followed by a raft of purchasing managers’ indexes Wednesday for Japan, France, Germany, the Euro-Zone and the US. Thursday then sees Germany’s Ifo index, the US leading index and the Kansas City Federal Reserve’s gauge of manufacturing activity.

However, CNN Money’s Fear & Greed Index suggests that investors are still far from confident. With a reading of just 18, it currently implies that “extreme fear” remains the emotion driving the markets.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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