Downside Correction Stalling

Aside from in Europe, It’s been a quiet start to the week for global equities benchmarks with most indices trading slightly down against the week’s open on Tuesday. The correction over prior weeks looks to have stalled, for now at least, though the backdrop of a stronger US Dollar and higher US yields remains a headwind to equities markets. Notably, the passing of Biden’s $1.9 trillion fiscal stimulus package through Congress failed to give equities the boost that many were looking for. Given the firm rally seen from around November, it seems much of this was already baked into the price action. Furthermore, with the final package having been diluted down from the initial proposed bill, the current price action reflects a degree of disappointment that some of the more significant measures, such as the doubling of the minimum wage, were stripped out.

There are signs that the global recovery is stating to gather pace; better retail sales data in the UK, stronger-than-expected inflation in the eurozone and continued US data strength, all point to better conditions. With large scale re-openings expected across Q2, the risk of the reflation trade gathering further momentum, lifting yields higher, poses a serious barrier to further gains in stock markets. Traders will be paying close attention to the March ECB meeting this week with traders keen to see how the bank will address the rise in yields. The meeting will be especially important given that the DAX has broken out to fresh record highs this week as recovery optimism drives sentiment higher.

Technical Views

DAX

The DAX has surged above the 14128.76 level following several tests of the level over recent months. While above here, bulls firmly have the momentum and the bias is for further advances over the week dependent on the ECB.

S&P500

The S&P remains tightly congested within the centre of the 3786.25 – 3964.25 range. Following a brief dip below the rising trend line from 2020 lows, buyers drove price back up though the move has lost momentum for now. While in this zone the market is vulnerable to further losses towards 3654.75.

FTSE

The FTSE is attempting to push higher this week and is now testing the upper line of the contracting triangle here, having broken above the 6640.6 level. If price can breakout here, the next focus will be a break above the 6803.1 level.

NIKKEI

The NIKKEI is trading back within the centre of the rising channel from last year’s lows. The correction from 30752.5 has stalled for now, though, unless bulls get back above the 29749.1 level, the market is vulnerable to a further push lower towards the channel low.

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