It looks like the US dollar’s latest recovery attempt has been futile amid investors’ insatiable risk appetite, which is continuing to underpin foreign currencies, commodities and, above all, the stock markets. The S&P 500 has hit a new record, with Nasdaq holding just a few points below its all-time high.
The prospect of an extra $1.9 trillion in fiscal stimulus has for now offset some concerns over valuations. The Biden administration will have to work hard to head off Republican concerns that the spending is excessive. Some Republicans want the focus to be on vaccine distribution rather than handing out more cash. But although there are questions surrounding the timing and scale of new fiscal aid, investors seem convinced that the aid is coming, nonetheless.
Investors are also positive that the fourth quarter technology earnings will beat Wall Street expectations. Big tech earnings are on the way, starting with Microsoft and AMD tonight after the close. Apple, Tesla and Facebook will be among the reporters on Wednesday.
European markets rebound after weak start to the week
In Europe, stocks had made a slow start to the week and fell quite noticeably on Monday, with sentiment here hurt by tempering in the vaccine optimism due to the delays. Airlines and hospitality sector struggled on Monday. But today, the European indices managed to bounce back and the DAX closed in on record highs again while the FTSE held the key 6650 support.
Could European stocks outperform?
I reckon European stocks, which have lagged their US counterparts so far in the recovery, could start to shine more brightly going forward. With a Brexit deal secured and COVID vaccines being rolled out (with relative success in the UK), investors are likely to look through the short-term economic risks arising from the current lockdowns. While virus cases have started to fall, there is still a long way to go as lockdowns are unlikely to end until deaths start falling and in any case until more people are vaccinated.
- Beyond Meat shares soar 37% at the open after company teams up with PepsiCo to make plant-based snacks and drinks
- Shares of Moderna were in focus after surging more than 12% Monday when the drugmaker said it was on track to deliver 100 million doses of its COVID-19 vaccine by March
- Johnson & Johnson reported stronger-than-expected earnings and revenue, sending its shares higher
DAX bull flagging
Although the focus is clearly on US stock markets tonight and in particular on Microsoft, the DAX index has caught my attention today. The German index is in the process of forming a bullish-engulfing-like candle on the daily after finding good support off the support trend of the bull flag pattern. If the index manages to now break through the resistance trend of the flag, a strong continuation should be on the cards in the days ahead, especially as the recent consolidation has allowed momentum indicators to work off their overbought conditions through time rather than price. So a new all-time high looks imminent.
Source: ThinkMarkets and TradingView.com
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