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The tumble in global equities went on for the first six weeks of 2016 before posting a weekly gain last week. However, the bounce, which started early in the week, petered out by the end of the week, reflecting the pessimistic mood of investors.
The familiar themes of global growth concerns and oil woes have dominated sentiments, and look set to continue in the near future. Added to the downbeat is the increasingly disillusion about the efficacy of major central banks to stimulate growth. There is uncertainty how the markets will look like over the next few months, and this uncertainty is killing the risk appetite.
Front month oil futures rebounded on Wednesday after the knee-jerk sell off in the previous day. The quick turnaround in prices is unlikely to put investors in a bid frenzy, rather it would make them more cautious about the way markets react to news. Gold continued to trade sideways, with strong barriers on either side of the trade.
What concerns me is the possibility that the recent ‘calm’ in the markets is temporary as investors work out what to do next. Since there is really nothing much to cheer about, we could see another leg down in the risky markets. The bunch of Fed speakers this week could provide some of that impetus. But regional players would be eyeing China’s National People’s Congress, slated to commence next week. The world will be watching to see what the Chinese will do next.
Yesterday: S&P 500 +0.4%; DJIA +0.3%; DAX -2.6%; FTSE -1.6%
DAX eyes further south
The DAX index fell through the 9300 level in the overnight market, and closed considerably lower at 9167.80, signalling that we could see a bigger move lower in the coming sessions. According to technical charts, next support targets are seen around 9138 ahead of 9044 and the big 9000 handle. Prospects of more weakness in the German index mean there is an opportunity to short with a good risk/return profile. On the upside, a move back above the 9300 level with good volume could send a signal that we may see the recovery staged on 12 Feb continuing.
*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG