Dow Jones, FTSE 100 Analysis and News
- Peak in Volatility Does Not Mean Bottom in Equities
- Dow Jones | Chinese GDP to See a Sharp Deceleration, Risk Rally to Fade?
- FTSE 100 | Quiet Start But Risks Remain Lower
Risk Rally Persists For Now
A strong week for US equities with double-digit gains across the board. While economic data signals a severe economic shock with the latest jobless claims data confirming that 18 million jobs have been lost in 3-weeks (Figure 1). The fact that new coronavirus cases and fatalities have been leveling off slightly, alongside the additional stimulus help from the Federal Reserve has somewhat calmed investor angst for now.
Figure 1. Labour Market Deteriorates Significantly
Peak in Volatility Does Not Mean Bottom in Equities
The rebound in equities has coincided with the pullback in the VIX. However, while the VIX has pulled off its recent highs, the index is elevated nonetheless and given that downside risks remain with regard to an uptick in coronavirus cases or an extension of lockdown measures, volatility will likely persist. Alongside this, much like in the global financial crisis, the peak in the VIX did not mark the bottom for equities, therefore while the VIX may continue to pullback, so to can US equities as highlighted in Figure 2.
Figure 2. VIX Peak Does Not Coincide with Market Bottom
Dow Jones | Chinese GDP to See a Sharp Deceleration, Risk Rally to Fade?
As we look to next week, hard data in the form of Chinese GDP will provide an indicator as to the impact of coronavirus has had on the economy. Unsurprisingly, expectations are for a sharp deceleration. While over in Stateside, investors will begin to weigh upcoming financial reports from US companies and as my colleague, Peter Hanks states, expect an earnings season like no other. On the technical front, the resistance is situated at the 50% Fibonacci retracement, where failure to break above may see the recent risk rally begin to unwind.
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Dow Jones Price Chart: Weekly Time Frame
Source: IG Charts
FTSE 100 | Quiet Start But Risks Remain Lower
A holiday-shortened week will see the FTSE 100 get off to a relatively slow start. With little scheduled on the UK economic calendar the index will likely take its cue from the macro backdrop. UK lockdown measures are to be extended and as such, this keeps risks tilted to the downside for the index. As such, a break below 5700 opens to the doors for a move towards 5500.
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FTSE 100 Price Chart: Weekly Timeframe
Source: IG Charts
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— Written by Justin McQueen, Market Analyst
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