S&P500 Mapping An Impulsive Decline 2018 or 2008/09 Vintage?
Markets have staged another, aggressive, risk off move at the start of the week, as the breakdown in talks between Saudi Arabia and Russia see the former announce that they will increase the supply of oil into the market – Brent Oil futures were down over 30% at one stage. This comes as market sentiment was already under pressure due to Covid-19 risks and uncertainty. Commodity currencies are the main under-performers to start the week, with MXP -6%, NOK -3% and CAD -1.6% from Friday’s close, while JPY is the main beneficiary +3%. As bond markets open, UK 2 and 5 year yields have traded into negative territory for the first time. Data wise, over the weekend February international trade data for China revealed a sharp drop in exports and weak imports that took the trade balance into deficit – showing the impact of the coronavirus.
Markets are now watching for further policy responses from global central banks and governments to rapidly unfolding events – last week we saw the RBA, FED and BOC cut rates. This week the ECB meet on Thursday. Markets are expecting some policy changes but economists are less certain because of the ECB’s limited residual firepower with interest rates already in negative territory. Domestically in the UK the dominant event is likely to be Wednesday’s budget. That is expected to provide some economic stimulus and its extent will help shape expectations of whether the Bank of England is likely to cut interest rates. This is followed by the UK Financial Policy Committee meeting Friday – but unclear whether we will get any immediate news from this; the statement publication is meant to be released on 24th March. There is no data of note today, Chinese inflation overnight.
From a technical & trading perspective the US500 is currently limit down after triggering circuit breakers in overnight trade. Prices now look poised to make a test of the pivotal symmetry swing objective sighted at 2770 which would represent a decline equivalent to the late 2018 decline. This area also retains Fibonacci significance as 27332 represents a 61.8% retracement from the recent cycle highs. If bids emerge here underpinned by a fundamental catalyst (covid-19 vaccine or major coordinated fiscal stimulus, there is a window to create a base for an eventual retest of pricor cycle highs and then on to new all time highs. A failure to find support in this zone would open a a move to match that witnessed in 2008/09 which would imply a move to test the trendline support from the March 2009 lows at 2484
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