Key Talking Points:
- The latest meeting minutes confirm the Fed has started to consider tapering asset purchases
- CAC 40 take a tumble after an impressive performance over the last few weeks
- DAX 30 pulls away from 16,000 as it struggles below its ascending trendline
Global stocks are falling this Thursday morning as the Federal Reserve confirmed in yesterday’s meeting minutes that it is considering removing some of the monetary stimulus in the economy. There is no surprise in this statement as markets have been talking about tapering for months, but it seems like the official confirmation from the central bank brought some jitters to investors.
You can then only imagine what may happen next week when the Fed meets at the annual Jackson Hole symposium to discuss all thins monetary policy, the date when most economists are predicting that the Fed will actually announce a stimulus reduction to take place later on in the year, which has caused an open debate about expectations of when the central bank would actually start to taper, either in September or December.
At the end of the day, tapering is not really stopping, it’s just taking your foot off the accelerator a little bit, and given the economic data has been showing that the US economy is improving significantly, with inflation at its highest since 1992, the economic landscape does seem a little overcrowded with stimulus. Stocks have been on a strong “the only way is up” path over the last few months so I would be surprised if this selloff gathers anymore steam just off the back of an outdated meeting from the Fed. There is likely some further upside left, at least until the actual stimulus is removed towards the end of the year.
CAC 40 SHYING AWAY FROM ALL-TIME HIGH
The French index has been one of the hardest hit this morning, dropping over 2.8% at the time of writing. This follows on from a few days of bearish momentum, undoing 12 days of steady gains in just 4 sessions. The CAC 40 has been the outperformer in recent weeks as the index has been on a strong bullish run in an attempt to reach its all-time high from the year 2000 at 6,495, but has unfortunately fallen shy of it by just 30 pips.
I do expect momentum to pick up again in the near future for the CAC to break its all-time high but today’s selloff is making it harder to picture strong support. I would expect new buyers to be attracted to lower levels but some stops may have been triggered along the way, especially as its crossed some round numbers which tend to act as psychological levels for stops and limits. Now that 6,800 has been cleared the next level to watch out for is 6,500, where we’ve seen some support in the past.
CAC 40 Daily Chart
DAX 30 REJECTED AT 16,000
The other big loser in Europe this morning is the DAX 30, which had also been on a pretty good run lately. The bullish trend hasn’t been as smooth in the DAX as it has with the CAC, but the German index was outperforming its European peers at the beginning of the recovery from the pandemic lows back in May/June last year. That said, for the past month the DAX has been trading below its ascending trendline from the January lows, which was putting some bearish pressure on the index. The 16,000 level has proven to be a tough area to crack so we may see the index pullback towards its 127.2% extension level (15,424), which has been key for the past three months before it is able to foster a new attempt at breaking 16,000.
DAX 30 Daily Chart
| Change in | Longs | Shorts | OI |
| Daily | -9% | 2% | -1% |
| Weekly | 14% | -14% | -7% |
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--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
