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Stocks bounce back after last week’s falls

Fawad Razaqzada Fawad Razaqzada 13/09/2021
Stocks bounce back after last week’s falls Stocks bounce back after last week’s falls
Stocks bounce back after last week’s falls Fawad Razaqzada
  • Stock markets bounce back after last week’s falls
  • Crude oil extends rally
  • Inflation and stagflation key focal areas
  • S&P 500 holding onto trend line - for now
After last week’s falls, European indices and US index futures bounced back noticeably and were hitting new session highs at the time of writing at midday in London. Energy stocks were leading the gains, as crude oil reached a six-week high. Short-covering probably aided the rally in what is a data-void first day of the week.
 
The German DAX was up a cool 1.4%, leading the charge in Europe. In FX, the dollar rose, while the euro slipped, along with safe-havens Swiss Franc and Japanese yen. Gold and cryptocurrencies fell further.  Crude oil was up sharply again, after a record production slump in the US – due to adverse weather – more than offset China’s decision to release crude from its strategic reserves.
 
It is worth observing price action closely this week. Given last week’s falls for major indices, it could be that today’s stronger start could be faded later in the day or week, as trapped bulls exit their trades or fresh selling takes places at better levels.
 
Sentiment has not been too great of late. Stagflation has been the key talking point amid weakening data from the US and rising inflationary pressures. Indeed, the Citi US Economic Surprise index has been falling consistently and has now reached its the lowest since June 2020.

citi
Source: Bloomberg 

Although the economic calendar is quite quiet today, we have seen oil prices rising further with WTI closing in on $71 handle, and aluminium hitting its highest level in 13 years. These only add to rising input costs, potentially leading to further consumer inflation as producers pass on the extra costs.
 
Inflation concerns will remain in focus this week, with US CPI out on Tuesday. Depending on the outcome of this, traders’ expectations about the timing of stimulus withdrawal will be adjusted again, potentially leading to some volatility.
 
The main worry is about growth now. Record stimulus measures are continuing to keep the economy ticking over, but the pace of growth seems to have slowed down. This comes at a time the Fed is about to potentially reduce its purchases. For other central banks that are still very dovish, it is not easy to vastly expand QE from current levels. Likewise for many governments, further big fiscal stimulus measures are almost impossible given their record borrowing during the height of the pandemic.
 
So, going forward, the risks for stocks and probably some other risk-sensitive markets are likely to be skewed to the downside.
 
Whether we will see renewed weakness come into the markets this particular week remains to be seen. But the week ahead does feature some important data. We will get the latest CPI and retail sales reports from the US and UK, as well as some market moving data from the likes of China (retail sales and industrial production), Australia (employment report) and New Zealand (GDP). FX traders should be kept busy. See the macroeconomic highlights below.
 
Incoming data releases will be scrutinised closely going forward. After a long time, the FX markets are once again becoming data dependant as investors are trying to figure out which central bank is comparatively becoming more hawkish as life continues to slowly turn back to normalcy.
 
 
Macroeconomic highlights
 
Tuesday
  • UK earnings and jobless claims
  • US CPI
Wednesday
  • Chinese retail sales and industrial production
  • UK CPI
  • US data dump - Empire State Manufacturing Index and Industrial Production among others
Thursday
  • New Zealand GDP
  • Australia employment report
  • US retail sales, jobless claims and Philly Fed manufacturing index
Friday
  • UK retail sales and consumer inflation expectations index
  • US UoM consumer sentiment and inflation expectations
 
S&P 500 holding onto trend line - for now
 
It is worth keeping a close eye on the S&P 500 index as it continues to find support on the dips near its rising trend line. With the index bouncing off it many times, the trend line has become very obvious, which means a potential breakdown should not surprise anyone. The bears must wait for the breakdown first before attempting to look for bearish trades.

S&P 500
Source: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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11/10/2021

Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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