The general tendency in European equities remains pretty much neater to complete this week as most important indices are only shy off recent highs but are fighting to push any higher. The recent epidemic of this third-wave of the Covid-19 pandemic has forced investors worry about the ramifications that delaying the re-opening of nations will have about economic recovery, but markets are still turning somewhat of a blind eye to this scenario given the large amount of stimulus going into the US economy, which is spilling over into Europe.
Another positive note is the improving economic data coming from the US and China, which will be aiding positive sentiment as the economic outlook for both major savings is advancing. Nevertheless, this improved outlook is also inducing investors to believe the Federal Reserve might need to take action quicker than anticipated to control an overheated economy once inflation shoots up, which will be maintaining bond yields on the move greater, dampening stock functionality.
With respect to the outbreak in Europe, France has imposed a new 4-week nationwide lockdown after the nation suffered its worst increase in fresh Covid-19 instances since November this past year, with the average figure coming in around 40,000 new cases on a daily basis, which has caused the authorities to change tactics given it had only enforced regional measures up until now in trying to aid the economy whilst controlling the spread of this virus, but he has seemingly run out of options.
The increase in new cases is pretty much a frequent theme in the majority of Europe, with new versions being the most important cause of this rapid gain in the spread of the virus.
IBEX 35 LEVELS
The situation in Spain looks much more under control at the moment, although the national average has improved slightly and has set the federal government on high alert going in the Easter weekend. Movements between areas are forbidden in the next few days but there’s still a high risk that new restrictive measures will need to be put in place following Easter as new cases are likely to grow. The hospitality and tourism industry, among the greatest in Spain, was expecting that the Easter holidays would provide decent relief into the awful 12 months they’ve had so much, but the limitation in movement between the country usually means another blow to the Spanish market, with an extremely uncertain summer season leaving several investors on high alert.
The fall under the ascending trendline in the last two months is creating the consolidation of bullish pressure more difficult to reach, therefore expect the index to be rather sluggish until it is in a position to push above 8,800, which might, in turn, imply a new annual high. Looking at momentum signs, I would not be shocked if the IBEX 35 consolidates around present levels before attempting a new push higher. We might even find a good pullback to attract new buyers into the market. If so, look in the 61.8% Fibonacci in 8,450 for instant support before focusing on the 8,000 horizontal line.
CAC 40 LEVELS
Overall the CAC 40 has outperformed the IBEX 35 from the retrieval from the pandemic lows but its expansion has skyrocketed in recent weeks as it has reached a new yearly high. The weekly chart shows this crystal clear resistance at the February 2020 high (6111) that the French indicator was unsuccessfully trying to surpass for the previous 4 months. Momentum has turned positive again but the bullish tendency is becoming fatigued and overstretched, so a bearish reversal may be needed to gather more strength and break the barrier.
On the downside, there are two clear support areas set up. One is the 5,700 point where selling pressure has been restricted since mid-February, and the other one is the 5,312 line which has held the support for the CAC 40 because November 2020. Again, like with all the IBEX 35, we may see sideways consolidation prior to a meaningful break in either direction is achieved.
