Dow Jones Rebounds from Yesterday’s Sharp Selloff

The news shaping the markets today

South Korea’s economy expanded 4% in 2021, recording the fastest pace of growth in eleven years amid increased demand for exports. However, the KRW/USD forex pair remained under pressure after the news.

Australia’s annual inflation rate accelerated to 3.5% in the fourth quarter, from 3.0% in the previous three-month period. The latest reading also came in above market expectations of 3.2%, exerting pressure on the AUD/USD pair in forex trading this morning.

Colombia’s industrial confidence indicator fell to a six-month low of 11.6 in December, from 15.2 in the previous month, exerting pressure on the COP/USD forex pair.

New Zealand’s BusinessNZ Performance of Services Index improved to 49.7 in December, from 47.2 in the previous month. However, the figure represented the fifth consecutive month of contraction in the services sector, which sent the NZD/USD pair lower in forex trading this morning.

Europe’s equity markets settled at multi-month lows on Monday. The pan-European STOXX Europe 600 index dipped 3.8%.

What’s happening: US stocks rebounded on Monday as investors monitored recent developments in Russia.

What happened: Markets continued their sharp downtrend earlier in the session on Monday, after ending last week in the red.

However, equites rebounded as investors awaited more earnings reports from big companies and a key monetary policy decision from the US Federal Reserve.

Why it matters: The US equity market has been on a general downtrend so far this year, with the Nasdaq index shedding around 16% from its record high reached in November 2021.

Investors remained on the sidelines due to speculations of aggressive tightening by the US Fed to ease accelerating inflation in the country. The Fed is scheduled to conclude its policy meeting on Wednesday and investors will closely monitor the announcements from the country’s central bank.

Market experts expect the Fed to announce a 25bps (basis points) hike in its benchmark interest rate in March.

Following Russia’s build-up of military presence at Ukraine’s borders, the NATO (The North Atlantic Treaty Organization) announced plans to send more ships and aircrafts to bolster defence in eastern Europe.

The quarterly earnings season so far provided some support to markets, with around 74% of S&P 500 firms reporting upbeat results.

“The recent pullback in risk assets appears overdone, and a combination of technical indicators approaching oversold territory and sentiment turning bearish suggest we could be in the final stages of this correction,” JPMorgan analyst Marko Kolanovic said in a note to clients.

The Dow Jones gained 99.13 points, or 0.29%, to settle at 34,364.50 on Monday, after losing around 1,100 points earlier in the session. The S&P 500 gained 0.28% to reach 4,410.13, while the Nasdaq 100 added 0.49% to close at 14,509.58, after tumbling around 4.9% earlier in the session.

Despite the strong rebound on Monday, the S&P 500 is still on course to record its worst monthly performance since March 2020.

What to watch: Investors await minutes from the Fed’s meeting and look for any indication of the timing of the anticipated interest rate hike. Rising geopolitical tensions will also remain in focus.

Markets will also keep an eye on the release of economic data on home prices and consumer confidence from the US today. The S&P CoreLogic Case-Shiller home price index, which rose 18.4% year-over-year in October, is expected to rise 18% in November. The Conference Board’s consumer confidence index is projected to decline to 111.8 in January, from the previous month’s reading of 115.8.

The markets today

Bitcoin will be in focus today after recording sharp losses over the weekend

Context: Bitcoin climbed on Monday after hitting its weakest level in six months earlier in the session.

Details: Market risk appetite has been impacted by fears of Russia attacking Ukraine. The NATO announced plans to put forces on standby in response to Russia’s building military presence at Ukraine’s borders.

Cryptocurrency traders booked profits over the weekend, with prospects of the Fed tightening its monetary policy weighing on risky assets.

Bitcoin prices remained under pressure for most of the session on Monday, but recovered losses later. The largest cryptocurrency tumbled to $32,951 in early trading, reaching its lowest level since July 23.

Bitcoin has lost more than 24% year to date, while Ethereum is down over 36%. Traders continue to look for shorting opportunities, with growing conviction that the Fed will begin ratcheting back its massive asset purchases. On the other hand, the crypto market remains supported by bullish institutional investors, like Andreessen Horowitz, which plan to raise billions of dollars in crypto venture funds.

What to watch: Markets will monitor announcements from the Fed, while the European Central Bank is widely expected to keep interest rates unchanged till yearend.

Other Markets: European indices closed lower on Monday, with the FTSE 100, Dax 40, CAC 40 and STOXX Europe 600 down by 2.63%, 3.80%, 3.97% and 3.81%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

South Africa’s leading business cycle indicator, Turkey’s manufacturing confidence index and capacity utilization, UK’s public sector net borrowing, Confederation of British Industry’s order book balance and CBI’s quarterly gauge of manufacturing optimism, Spain’s producer price inflation, Germany’s Ifo business climate indicator, Ifo current conditions and Ifo expectations, Brazil’s FGV consumer confidence and government revenues, Mexico’s economic activity, US Redbook index and Richmond Fed manufacturing index, as well as Argentina’s leading economic index and economic activity estimator.