You get the feeling that investors are not quite sure what to do today. The markets managed to bounce back sharply from their lows on Tuesday and that momentum carried forward at the start of today’s session, before easing off their best levels again. There isn’t much in the way of economic data to provide any fresh impetus, meaning investors will probably keep focusing on those headlines coming out of Russia and Ukraine. But now that investors have had time to digest everything that has happened, including the not-too-stringent-sanctions, their focus might return to inflation once again. The latest upsurge in energy prices will further exacerbate inflationary pressures and potentially hurt consumer spending.
Investors are wary of the energy crunch in Europe and how this might impact consumer inflation and spending in the months ahead. There is a risk that gas prices might rise further in light of Germany’s decision to cancel the approval of the Nord Stream 2 pipeline. So, inflationary pressures might exacerbate in the near term and force the ECB to apply the brakes by tightening its policy faster. Meanwhile, the Federal Reserve is also set to tighten its monetary policy aggressively, starting with at least a 25 basis point hike in March.
Therefore, investors might be less willing to bid up stock prices too much, until something fundamentally changes.
Meanwhile from a technical point of view, some of the global indices are testing key levels, including the
German DAX, around 14830 to 15000. In this report, I wanted to highlight a very similar level on the Europe Stoxx 50 index:
Source: ThinkMarkets and TradingView.com
As per the chart, the area around 4045 had been a key support in the past. But now that we have broken below it, the sellers could step in here and trigger a fresh round of selling. If they don’t then that could be an early sign of bullish strength. Let’s see what happens here.
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