Hello traders, like always on this post I will be going analyzing the global markets to get the general feel of market sentiment and hope it can be insightful for traders reading the post.
SPX
Like usual, we’ll start with the S&P 500 (SPX), which is the leading global stock market. The SPX is currently under some bearish pressure due to the banking failures at SVB and Credit Suisse, which caused global financial panic and a spike in volatility. Before the issue, investors were hoping for a bull market with falling inflation in the US, but the banking issues drove back the bullish expectation, turning the stock market back to bearish.
On the technical side, the SPX is forming a bearish market structure with lower highs and lower lows. Recently, the bulls tried to make a break of the first resistance level at 3930, which nicely aligns with the 200-day moving average (4007) but failed to do so, which keeps the bearish sentiment intact for the time being. Also, a bearish trendline can be drawn on the charts, with the 50-day moving average (4007) just hovering above the trendline. The stochastic just went out of oversold territory and could signal potential further upward momentum in the short term.
The bears would like price to test the recent low, and a further break of the recent low of 3808 could possibly drive another selling pressure to December’s low at 3764. On the other hand, a break of the 50-day moving average and a close above 4078 could change market sentiment back to bullish.
BOND
The 10-year bond yields are also reflecting the same bearish sentiment as yields drop to 3.436% after topping at 4.070% in early March, breaking the 50-day moving average (3.675%) and the 200-day moving average (3.5%). The strong drop in bond yields would then reflect in the surge in bond prices due to their inverse relationship. Bond yields and bond prices do show global investors to turn from risk assets such as stocks to non-risk assets due to the banking failure issues.
VIX
The VIX “fear index” spiked significantly from last week’s trading session as the banking failure issues progressed, and currently, the VIX is still showing some degree of fear as it has been over the 20 level for several days despite several officials attempts to calm the market, but instead global investors could still be concerned about the US banking system. A further raise of the VIX would then lead to another bear leg for risk assets and bond yields as investors turn to risk-off assets such as bonds and gold.
FED INTEREST RATE
With the upcoming FED meeting in just over two days, the market is expecting a 25 basis point rate hike as investors are weary if a 50 basis point rate hike would be appropriate as the banking failure issues arise and there is some level of uncertainty. Markets are also pricing in the Fed starting to cut rates as early as mid-2023.
source: CMEGROUP
ECONOMIC DATA
After the volatility from last week’s trading session, investors will continue to keep an eye on the state of the banking industry while also anticipating the monetary policy choices of the Fed, BoE, and SNB. The UK, Canada, and Japan’s inflation rates will also be under the spotlight. Last but not least, other economic information such as the PMI statistics for the US, Japan, UK, Euro Area, and Germany should shed some light on the state of the manufacturing and services sectors in March.
source: Tradingeconomics
Conclusion
The market is currently experiencing a bearish sentiment; it may not be a long-term bear market, but bearish market sentiment is present. Such bearish sentiment can be positive for risk-off assets such as bonds,gold, and safe-haven currencies. Also, expect high volatility in the upcoming week due to several key economic data releases, such as inflation numbers, and the central bank’s policy decisions.