Dow Jones, FTSE 100 Analysis and News
- Peak in Negative Sentiment Depends on Peak in Coronavirus Cases
- Dow Jones | Bear Market Rally to Unravel Post Portfolio Rebalancing
- FTSE 100 | Bull Trap Sets Up a Potential Retest of the Lows
Peak in Negative Sentiment Depends on Peak in Coronavirus Cases
Throughout the week, the number of coronavirus cases has been met with a mixed reaction. First off, the number of cases in Italy had appeared to be slowing, however, the spread of the virus appears to be spreading rapidly in the US, which has now overtaken the original epicenter of China. In turn, for the negative sentiment to peak, this would depend on reaching a peak in the number of cases. Alongside this, the initial impact of the coronavirus has already been felt in the jobs market, with US jobless claims reaching a record 3.283mln, which we believe is a precursor to weak NFP data. Don’t be surprised of a negative NFP headline.
Record Jobless Claims
Dow Jones | Bear Market Rally to Unravel Post Portfolio Rebalancing
The beginning of the week saw the Federal Reserve effectively announce unlimited QE, which had been somewhat of a game changer for US equities, with the Dow Jones subsequently on course for its best week since 1932. However, we are cognizant of the fact that with underlying issues pertaining to the coronavirus forcing US activity to a grinding halt, downside risks remain. As such, we see this as more of a bear market rally, potentially impacted by suspected frontrunning of massive portfolio rebalancing inflows expected at month and quarter end. Therefore, the beginning of the new month (Wednesday) may provide a clearer sense as to where the equity market is at. Consequently, we are cautious in chasing a bull trap.
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Fed Balance Sheet Breaks Above $5 Trillion: The Only Way is Up
Dow Jones Price Chart: Weekly Time Frame
Source: IG Charts
FTSE 100 | Bull Trap Sets Up a Potential Retest of the Lows
The number of coronavirus cases in the UK unfortunately showing little signs of easing, which in turn raises the risk that much like the Dow Jones, the FTSE 100 is showcasing a bull trap. The risk is that the lockdown is extended. Keep in mind that Wuhan had been in lockdown by roughly 9 weeks, a similar duration may well see a retest of the lows. Volatility remains elevated and therefore it will be important for traders to remain nimble.
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FTSE 100 Price Chart: Weekly Timeframe
Source: IG Charts
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— Written by Justin McQueen, Market Analyst
Follow Justin on Twitter @JMcQueenFX