The Sell-Off

Daily Analysis - 12/02/2018

Markets Continue Convulsing

sell-off


The week ended February 9th was marked by a sharp sell-off which started after the nonfarm payroll release of the previous week, reaching levels that haven't been seen since the 2016 presidential election. The market has grown increasingly concerned over the prospect of inflation and rising interest rates.

Last Week 


Strong earnings helped the surge of the 9-year bull market pushing stocks even higher remaining in the overbought territory for an extended period of time, longer than usual.

A correction was long due. In the cases of rapid expansion, the correction is even higher and last week it reached 10%.

The major indexes moved sharply lower over the past week. While RSI readings point to oversold levels, the MACD remains in a bearish downtrend for all of the major indexes.

Global equities came under heavy selling pressure this week, losing as much as $6 trillion in stock market capitalization. The tech sector took the biggest hit.  The US Dollar appreciation pressured gold prices to the second weekly loss.

Crude oil prices plunged last week, the biggest loss since November 2016 after recent data reaffirmed investor expectations of rising US output, above 10 million bpd, which threatens to derail efforts by major oil producers to control excess supplies.

Super Thursday also gave signs for a sooner and higher hike of the interest rates in the UK as BoE Governor Mark Carney had a hawkish outlook for the UK economy.  Brexit negotiations, on the other hand, have a major impact on the sterling where even the Bank of England Rate hike talks were proven not enough to save sterling from further losses.

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This Week


This week, CPI inflation data for major financial markets like the U.S., UK and Germany are all set to be released in the coming days.

This week, traders will be closely watching several key economic indicators, including the consumer price index on Feb. 14, industrial production on Feb. 15 and consumer sentiment on Feb. 16. The market will also be keeping a close eye on ongoing political risks facing the U.S. economy and others around the world.

Expectations that the world's leading central banks will step back from easy policies and raise rates at a faster pace than is currently priced into the market. A pickup in inflation will be confirmed or not this week as it has sparked a global bond market sell-off this year, with yields in the U.S., Europe and Asia all pointing higher.

From the Asian market, Japan is to release preliminary data on Q4 GDP economic growth as traders look for further signs of a strengthening economy and hints on when the Bank of Japan will start withdrawing stimulus.

The employment report from Australia is also on the docket this week as investors seek further hints on wage growth which can give some hints on the future path of inflation.

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