A topsy-turvy week so far as the markets fluctuate between the negatives of a some increasingly tense geopolitical situations (North/South Korea and China/India) and surging Covid cases and the positives of the intractable draw of central bank stimulus. The latter winning out currently although volumes are lower overall with most sitting on the sidelines. The trend in Europe continues to be “volatile but overall sideways” with most indices trading between their 50dma levels (support) and their 200dma levels (resistance).

After a decent bounce in the US overnight (amid the Fed announcing that they will begin to purchase corporate bonds), Asian and European equities didn’t have another choice other than to follow (also boosted by Trump talking about a $1 trillion infrastructure package).  Asia closed up (SZCOMP made a 3m high) and Europe has been trading well up since the open. The V2X slipped -9% this morning and although it is still above its 200d average, it is encouraging to see it trading below both its 50d and 100d averages. While volumes remain low vs the last 5 and 20 days, important levels to keep an eye on include resistance at 10,000 on the Nasdaq and EuroStoxx 50’s resistance at 3383.

Bumpy start to the week as worries over a second wave of the virus dominate the headlines. The number of cases are not only increasing in the US but also in China – Beijing had to close one of  its biggest markets and lockdown nearby areas as they reported a surge in cases over the weekend. Asia slipped in the morning (note indices are still above their 50d averages though) and European equities followed. All indices ticked lower at the open and although they have partially recovered,  they are still in the red . Volumes are low across the board and not a single index is trading above its AVATs. Seems like the dip buyers / profit takers that we saw last week are in pause mode and as we suggested on Friday, they are ready to sit for a bit.

A much needed bounce after a torrid week although it feels more a case of selling exhaustion than anything particularly positive. UK MoM GDP showed a contraction of -20.4% in April (vs est. -18.7%) to continue the negative news flow. Note that leaves the UK behind the rest of Europe with the worst May survey. Volume wise it’s been a quieter session as investors lick their wounds. Lots of incoming on “where do we go from here”. As always with that question the charts team a good place to start and while the 50dma have broadly held, it does look as though markets will continue to struggle to break through the all important 200 dma. Possible these big moves mean people sit the next few sessions out.

I must admit that after the Fed announcement overnight I kind of asked myself, “ok the waiting game is now over, what’s next?” Many of us thought that the rotation wasn’t quite over but given today’s move, we are back to the old themes. Worries over a second wave of the virus, the economic implications of it and questions on whether we will see a V,W, or U shape recovery soon. Nearly all EU equities have been in the red since the open and all indices are at least 3% down (worst day in Europe in a month). VIX spiked +9% this morning and is currently just below 22 May high resistance at 31.55 (above here could target 40 area with support on recent lows 23.54).Volumes are not poor either (with all indices trading c.15% above vs their 20d AVAT) but strangely enough, it doesn’t feel like that’s being reflected here. It does feel quite machine driven today but I guess we will need to wait and see how today’s session evolves.  

With all eyes on the Fed, today has been a quieter session relative to the last couple of days. All EU indices have been trading below their AVATs since the open so clear that markets have decided to play the waiting game. We are not expecting any big policy changes, though it’ll be interesting to see if the Fed mentions anything about state-based forward guidance.

Keeping up with the rally was always going to be difficult, especially after we saw the S&P erasing all of this year’s losses overnight. Seems like investors have chosen today for some profit taking. All indices ticked lower at the open and have no desire to move the opposite way. Volumes are still pretty robust across the board and although our pad is dominated by sell orders today, note that we are still seeing money going into the Autos, Banks and Oil sectors. On the positive side of all, we might be set for more busy sessions before the weekend!

Busy day here at Redburn as we finish the week on a pretty interesting note. The rotation (and conviction) manifests again with cyclicals back outperforming defensives. Volumes are also supporting the case with all EU indices trading well above their 1d, 20d, oh wait, and also their 30d AVATs.  Adding to the good mix, Copper surpassed the key resistance at 250 this morning (next resistance at 263.95, +4.5% higher), Treasury yields are slowly picking up (with the US 10 year above 0.90% today) and the FTSE MIB is currently trading 20000 (200dma resistance is at 21162).

After a non-stop rally over the last couple of days, it seems reasonable for markets to take a break. We are seeing lower volumes across the board and it felt like investors were playing a waiting game ahead of the ECB meeting. EU equities traded pretty sideways throughout the morning but recently ripped (or more like tried?) post the ECB announcement. As we suggested at the time, the move was likely to fade.

After seeing some fairly hefty moves yesterday (mostly on the news that Spain will be open for tourists from July), today was always going to be an interesting session. European equities are definitely holding up since the open and encouragingly, this time on high volumes. Spanish names seem to be the favourites  with vols up +72% vs the last 20 days. Positive news on Remdisivir’s trial are supporting the cause. Same as comments from the Bank of France Governor, which suggest that we could see more stimulus coming (next ECB meeting week is on the June 4th).