Stock markets suffered a major setback in the first and second quarters of this month, as central banks began to raise interest rates at an enormous speed, in order to fight inflation, which in turn comes from rising prices around the world. So inflation continues to rise quite rapidly, officially averaging 10% globally, but in reality we know it is higher.
Nonetheless, it looks like central banks are starting to slow down with rate hikes as the global economy heads into a recession. This is helping sentiment in financial markets, with equity markets making a reversal and a respectable surge from mid-June through mid-this month.
But they fell last week as sentiment turned negative again on better US retail sales and the Philadelphia Fed manufacturing index. That meant the FED still had room for big rate hikes, so good data is bad news for risk sentiment now. The USD was bullish while equity markets fell, with the S&P500 falling from 4,325 to 4,120.
S&P500 Daily Chart – The 100 SMA Holding as support
Buy at the 100 SMA, aim for the 200 SMA
However, this was only a setback as the data deteriorated with the US already in a recession. This week’s services report showed that this sector had sunk further into contraction. Manufacturing approached the stable level while the Richmond manufacturing index turned negative. Thus, the economic situation is worsening because prices are still high, while an energy crisis is expected in Europe in the coming months, which will worsen the global situation.
Thus, central banks will slow down with rate hikes that will benefit risky assets such as stock markets. The decline seems to have already stopped at the 100 SMA (green) on the daily chart, which provides support. We decided to open a short buy S&P signal yesterday which closed in profit and we opened another long term signal at the 100 SMA, targeting the 200 SMA (purple) at the top.