January concluded with weak and volatile stock markets and the worst start to a year since 2009 as the USA500 lost over 5%. February starts with Central Banks and worries over inflation and geopolitical tensions, topped by NFP on Friday.
The Market Week – February Week 1
The financial markets remain nervous and volatile against the background of geopolitical risk, with stocks in January 2022 posting losses more than 5%, the worst since 2009, and the Dollar and Yields gaining over 1.5%. February has kicked off with a mixed bag of PMI & Jobs data and an overall dovish RBA. Still to come are BoE & ECB tomorrow and NFP on Friday.
Central banks clearly are getting nervous about the risk of second round effects, but the IMF’s growth downgrades also highlighted the risks from slowing momentum in China. The RBA will terminate their QE purchases this month but still maintain a dovish stance on “transitory” inflation. The BoE are likely to hike by at least 25 bps tomorrow with the ECB sliding to hawkishness but staying put on rates for now.
Ukraine tensions and speculation over gas supplies to Europe in the event of an escalation of tensions with Russia continues to weigh on sentiment. The West continues to bolster Ukraine and Russia continues to claim that their security concerns are not being taken seriously. North Korea tested its biggest missile since 2009 this week too.
In FX the USDIndex was off its highs earlier in the week at 97.40 as the USD cooled. Next support is the 20-day moving average around 96.00. EURUSD is up from 1.1121 lows to test 1.1300 once again and USDJPY has moved down from 115.50+ highs to 114.30. Cable has stalled its fall at 1.3360 this week and although the political turmoil in Westminster is far from over, with more calls for the PM’s resignation, the pair trades north of 1.3500 at 1.3540. However, Sterling remains vulnerable to bouts of risk aversion.
US stock markets had a recovery last week, but closed significantly lower to end January. The USA500 spiked down to 4,260 but has since moved to test the 100-day moving average at 4,570. The USA30 is on its 6th consecutive day higher, testing 35,500 from 33,600 lows, and the tech heavy USA100 is back over the key 200-day moving at 15,200, having posted 7-month lows last week.
Gold sank from its 10-week high last week at $1853, to test down to as low as $1780 this week. Subsequent weakness in the USD this week and continuing geopolitical tensions has lifted the key precious metal to the $1800 pivot point area. $1780 & $1770 are support areas with $1815, $1830 and $1850 resistance zones.
USOil prices continue to be supported by very tight supply, low inventories, and geopolitical tensions on top of concerns about further disruption. The key psychological $85.00 a barrel holds this week and the 7-year high at $87.80 is the next resistance area, as markets await the outcome of today’s OPEC+ meeting which is likely to see supplies maintained at 400k barrels per day.
The yields remain the key driver of the markets once again, and the US 10-Year Treasury Note breached the key 1.80%, as markets remain extremely volatile amid conflicting dynamics, economic data and geopolitical tensions.
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Stuart Cowell
Head Market Analyst
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