S&P 500, FTSE 100, DAX 40, Bitcoin Analysis and News:
Abysmal Start For Equity Markets
A poor start to the week for risk appetite, which sees European equities closing at the lows. The price action is largely an extension to the same concerns that plagued the market last week. However, while Fed policy has been a worry for some time, there is now the addition of heightened recession risks, we saw this flagged by the Bank of England last week in its economic outlook. At the same time, China has been slowing down as zero-covid policies bite, while Europe’s proximity to the Russian-Ukraine war will remain a drag on activity.
So What Now?
There is little I can see from a fundamental point of view that notably changes this sentiment. That being said, the key economic data of the week will be the upcoming US CPI figures, where a lower than expected reading could offer some reprieve in the very short term. (Find out more on the DailyFX economic calendar)
Alongside this, tomorrow is Tuesday and given the current price action we have seen since the back end of last week, this could set up for a “Turnaround Tuesday”. Since, the beginning of the 2018, the average return on Tuesday’s after the S&P 500 has fallen from Thursday to Monday has been 0.76% with a hit rate of 68%. However, this would be nullified if we see another ramp higher into the Wall Close. Reminder that with European equity cash trading now closed, be cognisant of potential front running from here on.
DAX 40
Taking a look at the DAX, short term support sits at the 23.6% Fib retracement (13,350) where failure to hold exposes the YTD lows at 12400-500. Meanwhile, on the topside, resistance is situated at 14,400 and 14,800. Momentum indicators in the form of the DMI suggest that the path of least resistance is lower.
DAX 40 Chart: Weekly Time Frame
Source: Refinitiv
| Change in | Longs | Shorts | OI |
| Daily | -17% | 0% | -5% |
| Weekly | -2% | -6% | -5% |
FTSE 100
A rather sobering outlook from the Bank of England to say the least. While there was initially a hawkish twist with a 6-3 vote split. The three dissenters voting for a 50bps increase. The accompanying statement was extremely dovish, not only the MPC see double digit inflation by the end of the year, they also see growth contracting from the turn of the year. In other words, stagflation. The BoE have all but said, markets are far too aggressively priced for rate hikes, as they see inflation over the 3Y horizon to significantly undershoot their 2% target based on current market expectations of rate hikes. In turn, while this has seen the Pound come under significant pressure, this does provide an undertone of support for the FTSE 100. Keep in mind, 2/3 of the revenue generated among FTSE 100 companies are from overseas, thus repatriated profits are worth more when the Pound falls. That being said, not even the sell-off in Sterling has been enough to shield the FTSE from the current market turmoil.
Going forward, while inflation data will remain high on the agenda, with the BoE worried about the cost of living squeeze. UK assets will become more sensitive to growth data going forward, including PMIs, retail sales and labour market data.
Last week’s vicious rejection from the 7600 handle keeps risks firmly tilted to the downside. A close above 7620 would be needed to alter that outlook. But for now, the bias remains selling rallies across equity markets.
FTSE100 Chart: Daily Time
Source: Refinitiv
| Change in | Longs | Shorts | OI |
| Daily | -25% | 12% | -1% |
| Weekly | 29% | -12% | -4% |
Bitcoin Approaching Psychological Support at 30k
Bitcoin is unable to escape the risk off environment, keep in mind that the correlation between Bitcoin and the Nasdaq is at a record high. Therefore, whatever moves the Nasdaq (rates market) we will likely see similar action in Bitcoin. As such, it is difficult to get bullish on Bitcoin unless equity markets stabilise. That said, the cryptocurrency is now close to significant psychological support at 30k, where a false break below 30k could have bullish potential technically.
Bitcoin Chart: Weekly Time Frame
Source: Refinitiv
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