The uncertainty phase
The current week has started way calmer than the previous one ended. It is important to consider that the observed calmness indicates the investors’ uncertainty in terms of the Fed and ECB being ready to slow down the key rates. Obviously, growth in the 10-year yields profitability is a strong retaining factor for the stocks market.
Another signal indicating at the uncertainty is a wide gap between the leaders and outsiders within a single index. E.g., within the first trading day of the week Infineon Technologies AG stocks have grown 7.8%, while Adidas AG lost 2.8%. Any confirmation of the Fed and ECB elevating the key rates at a previous pace is capable of provoking a powerful wave of sales.
Last week leaders and outsiders:
DAX:
Top: Infineon Technologies AG +7.77%, Merck KGaA +4.42%, Zalando SE +3.96%
Flop: adidas AG -2.79%, RWE AG St -2.16%, Brenntag SE -1.58%
EURO STOXX 50:
Top: PROSUS NV EO -,05 +5.72%, Volkswagen AG Vz +1.57%, Total S.A. +1.53%
Flop: PADDY POWER PLC EO-,09 -1.98%, Banco Santander S.A -1.9%, SAFRAN -1.59%
Dow Jones (us 30):
Top: Intel Corp. +3.24%, The Walt Disney Company +2.81%, IBM Corp. +2.44%
Flop: American Express Co. -0.99%, Wal-Mart Stores -0.6%, Home Depot Inc. -0.53%
The uncertainty phase is way worse than a bear market direction. As a rule, this phase is being followed by elevated volatility and, of course, the absence of a unidirectional quotes movement. That is why both sellers and buyers aiming at short term profit have losses on such a market. At the same time, a higher turbulence is not any threat to the long term investors, who use the other direction movement as an opportunity to increase an already existing position’s price.
Bond market:
The Europe bond market situation is not that straightforward. The 10-year yields profitability of Germany and France is not stable, which indicates at the investors being uncertain. This is provoked by the elevated expectations on the monetary policy being altered by the Fed and ECB. Many investors are too optimistic about the inflation slowdown in the US and the EU. At the same time the Europe’s inflation, including in the largest European countries is still higher. Considering that, there’s a risk of a moderate growth of the 10-year yields, which in turn would influence the stocks market.
Oil market:
Finishing today’s market review, let’s have a look at the two groups of factors giving multidirectional signals. China continues to register a lot of new COVID cases. With this on the background, the question about reducing the lockdown limitations becomes pointless. Consequently, one should not rely on the demand growth in China, the largest oil importer. Apart from that, OPEC also reports a reduction in the oil demand. To sum up, let’s also remember the Energy Information Management report in the US, it reads the oil extraction in 2022 was higher. These are the bear market markers.
On the other hand is the OPEC decision regarding the reduction of extraction, sanctions against the Russian oil and the greenback becoming weaker. Due to that reason we don’t see any sales and probably there won’t be any. Short term falls in oil quotes would make OPEC to react with extraction volumes alternations.
