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A new month but same old story

Despite it being the start of a new month, an all too familiar template is being used by the equity markets.

London skyline
Source: Bloomberg

The markets are suffering from Monday blues which look to have undone most of last Friday’s gains as soft Asian and European manufacturing PMI data has once again dented optimism. This week still offers numerous data releases that could be used as trigger points to send equity markets higher, but so far only confirmation of the pattern of lower highs in the index has been shown to traders. The change in direction for equity markets has also been witnessed in oil, as the spikes in both crude and US light have lost momentum and started to fall.

The majority of damage that has been done to inflation has been down to energy prices, but with WM Morrison slashing prices on 1000 goods by an average of 19%, this could well be the opening salvo in the latest food retail price wars. Gold has continued to hang onto last week’s gains but its grip has looked increasingly shaky the closer it has come to finally breaking its longstanding bearish outlook. In an all too common occurrence, the insurance and banking sectors have weighed the FTSE down with Prudential, Standard Chartered and Lloyds having been three of the biggest culprits. As time has ticked away towards a deadline for Sainsbury to put up or shut up over Home Retail Group, the  parent company for Argos, has seen a steady flow of traders expecting another bid to materialise as the shares have been driven 10% higher.

In years gone by, European equity traders suffering from a soft trading session in the morning could garner optimism in the knowledge that when the US markets opened, the markets would ignore what had gone on so far in the day, making their own call on where to go. That no longer appears to be the case. As Asia starts the ball rolling over night with another sell off, European traders take their cue and follow suit. The US no longer having the swagger of the biggest thing in town now invariably follows on that trend. With a combination of uncertainty surrounding interest rate decisions and the complexities of a US general election looming, the ‘buy on dip trader’ looks to be an increasingly  endangered species. 

FTSE 100 risers and fallers
 

Company % change Index points
easyJet +3.42 +0.51
International Consolidated Airlines Group SA +2.87 +1.10
Fresnillo +2.35 +0.11
InterContinental Hotels Group +2.09 +0.44
BT Group +1.93 +3.03

 

Company % change Index points
Prudential -3.00 -4.05
BP -2.43 -6.47
Standard Chartered -2.34 -1.14
Lloyds Banking Group -1.94 -3.15
Barclays -1.72 -1.07

Key charts to watch

​Dow Jones
The Dow has been surprisingly resilient today, given the widespread selling we have seen across Europe and Asia so far . The previous four-hour candle created a long lower shadow, bottoming out between trendline and horizontal (16,278) support. With this in mind, the chart looks relatively bullish despite the more bearish nature of its European counterparts.

A close back below 16,278 would an interesting bearish indicator and given the weakness in Europe, it is also worth watching out for a possible failure to create a new high above 16,455. A close hourly candle above that level would point to another move higher.

GBP/USD
GBP/USD has seen a massive rally today, bringing price back into the rising wedge that dominated trade last week. Given the break below $1.423 late last week, there is likely to be another leg lower, with the pair failing to retake the $1.4413 level.

As such, it seems prudent to watch for bearish intraday reversal signs to reverse the move higher so far today. A close hourly candle above $1.4413 would negate this bearish view.

US crude oil
US crude is clearly showing signs of weakness, breaking below the crucial $33.18 support level to create a double top formation. The projection of that pattern would bring us to $31.00. However, it is a move below $32.12 which would be most interesting as this would undermine the recent rally.

A closed hourly candle below $32.12 would bring back a bearish view, with support levels of $31.24, $31.00 and $30.48 coming into view. However, until $32.12 is broken, there is a chance we could see another move higher back towards $34.00.

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