Market sentiment appears to have rolled heading right into a new week, with indices showing mostly from the red at the start of the European semester. An explanation for this may be that the expected consequence from increasing bond yields will be finally materializing, making stocks look more expensive as sovereign bonds provide a greater yield. This move out of income had originally thought to benefit equities as we had been visiting flow migration, but it would appear that unconventional assets like cryptocurrencies and commodities such as petroleum are picking up the trade flows spilling from bonds.
This rapid growth in returns has also ignited the discussion regarding the Federal Reserve’s policy activities in light of this shift in economic expectations. Despite the Central Bank having reassured again and again that there are no anticipated changes to financial policy in the near future, investors have become cautious that the chances of a rate increase in 2021 are growing, leading equities to underperform granted the possibility of less stimulus in markets.
The latest IFO information on business and financial sentiment was released this morning, demonstrating that overall opinion has increased in Germany in the month of February. The current assessment has also come in better than expected at 90.6, although business climate has increased to 92.4 from 90.3. This really is a forward-looking indicator and it’s likely that the current rate of vaccinations has generated optimism for the coming weeks to rise the anticipation of comfort of social distancing measures.
The DAX 30 was gaining Maximum momentum this morning but the launch of the latest IFO data appears to have stalled further downside pressure for the time being, with current price hovering just above the H&S neckline (13,830). There doesn’t appear to be much certainty in the modern direction so I expect consolidation to continue dragging on between 14,000 and 13,800. A break below or above these bounds could see momentum boost in an attempt to solidify a management, although further upside appears to be strongly limited at this point. I still expect cost to attempt to culminate the H&S pattern, although the strong resistance to further downside does restrict the range of the pattern, meaning the bearish correction may just go as far as 13,600 before stalling.
