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  • Markets are on the edge of correction with a possible sell-off next week

Markets are on the edge of correction with a possible sell-off next week

The trading week closes on alarming note as major stock indices recorded a decline. German DAX fell by 0.16%, while British FSTE 100 that rose this week lost 1.4% on Thursday. U.S. stock indices are also in a red zone with Nasdaq posting loses over 1% and S&P broad market index tumbling by more than 0.8%.

Reasons for such alarming sentiment is clear while the January producers inflation data in the United States showed a hike of 1.9% year on year, a fastest growth since 2009. Retail sales jumped by 5.3% month on month from the previous minus (-) 1%.

So, a rise of 10-year U.S. Treasuries’ yields to 1.31% seem to be justified, as the vulnerability of the IT sector.

The reason for such vulnerability of IT companies is that they have the highest estimate regarding multipliers. It interest rates start rising the revaluation of share prices of such companies is the strongest. So it’s no coincidence the Nasdaq index is losing the most now.

A disappointing data for Jobless claims in the United States released on Thursday and lower than expected Q4 EPS of the retail giant Walmart flagged inevitable decline.

So, the situation in the stock market turned shaky. Any major disappointing reason could trigger correction.

As for Friday, we should be attentive to February PMI data in the United Kingdom, Eurozone and the United States. Analysts expect business activity to slow down and if actual data would confirm such expectation that may trigger a sell-off in the stock market that would even accelerate on the week ahead.

Brent crude prices have failed to return above the resistance at $64 per barrel. Despite excellent crude reserves data in the U.S. and extreme cold weather conditions in Texas Brent crude prices failed to sustain levels above $65 per barrel and slid below $64 per barrel. Such price pattern may signal a reversal in prices with possible targets at $62 and $61.5 per barrel.

Gold prices finally broke through the lower margin of the trading range at $1800-1880 per troy ounce amid rising U.S. Treasuries’ yields. It is highly likely we may see a downward move of prices to the support levels at $1650-1700 toz.

Currency market is in chaos as investors are looking for the U.S. Dollar to continue its descending trend that is put on half by rising Treasuries yields. So, we are witnessing a rare coincidence when a decline of the S&P 500 index is accompanied by the weakening Dollar.

The Euro continues to march to the 1.21200 target, while the British Pound continues its efforts to hold at 1.39800 with a possible rebound to 1.39000 afterwards. The USDJPY is likely to be trading in a narrow range of 105.00-106.00.