Stocks on the rise

Stock markets are on the rise in pre-market dealings amid elevated hopes that the core central bank will deliver further accommodation in the near term. Dovish comments from the ECB’s Draghi, along with softer Eurozone data, boosted expectations that the ECB will deliver easier monetary policy soon. 

European bourses recovered on this combination of dovish Draghi comments and the plunge in German ZEW investor expectations. Draghi not only confirmed that further easing will be necessary should the outlook not improve, but also that rate cuts and asset purchases are part of the central bank’s toolkit. 

Meanwhile, Eurozone HICP inflation was confirmed at just 1.2% and trade data showed a sharp correction in exports, which further fueled easing hopes as the Ifo institute joined the Bundesbank and downgraded its growth forecast for Germany. 

A much lower than anticipated outcome which confirms that investors are in full on crisis mode and are increasingly convinced that geopolitical trade tensions and Brexit risks will lead to a marked downturn in the global economy, with the export-oriented German economy in particular vulnerable to an environment that is increasingly hostile for global trade. The current conditions indicator for Germany actually fell less than feared, but expectations are clearly  increasingly depressed, which ties in with the fact that market based indicators of inflation expectations  are starting to also look worrying  to the ECB.

The GER30 has jumped 1.2%, while CAC 40 and Italian MIB outperformed with a better than 1% rally. The UK100 is 0.8% higher, while the USA500 is up 0.5%.

The strong jump of GER30 today raised doubts of the continuation of the bearish outlook for the index. The asset managed to break 3-week Resistance, hence the next level to be watched is at May 16 high at 12,318.90 and then year’s peak at 12,444.00. The floor meanwhile, lifted to 12,090.50 (at 50-day SMA). Immediate Support though is set at the latest daily up fractal and last week’s high, at 12,244.87, and at Friday’s peak (12,201.00).

Daily Momentum indicators are increasingly benign with RSI rising to 60 area, while the MACD lines turn positive as signal line retests neutral zone. With yesterday’s daily range of just 50 ticks (the ATR is currently around 67 ticks) this is clearly a market waiting for the FOMC meeting on Wednesday.

A closing today  above the 12,200 area could suggest the turn of the outlook into a positive one in the medium term. This could suggest a retest of the year’s peak. On the flipside, a return back to the 5-day range, could imply that the market is still under big downside pressure.


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Andria Pichidi

Market Analyst

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