Key Talking Points:
- Investors await FOMC meeting to gauge short-term direction aid rising bond yields
- IBEX 35 and FTSE MIB struggling to gather bullish momentum
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Expect a pretty dull session in Europe this morning as most attention will be focused in this evening’s FOMC rate decision. Despite no expectations of a change in current monetary policy, investors will be paying close attention to Powell’s address towards the bond market and increasing inflation expectations.
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Traders will also be looking out for any mention of extensions to the SLR exemption, which allows big banks to exclude reserve deposits and Treasuries from capital ratios, and is due to expire at the end of the month. There are some concerns that if it doesn’t get extended, bond yields could jump even higher as banks reduce their US Treasury exposure and so the Fed should extend the exemption to help ease pressure on the bond market.
Whilst the decision may not be announced today, the meeting could hold clues as to what they may decide before the end of the month and how this could impact markets.
European equities are looking pretty calm in the background although some of the majors are struggling to break above key levels. The reaction from today’s Fed meeting in US stocks is likely to spill over into Europe and Asia, so expect indices to turn bearish if yields do in fact shoot up.
IBEX 35 Levels
As I’ve mentioned previously, the Spanish stock market has done a good job at catching up to its peers since the announcement of the vaccine in November last year. The IBEX 35 now finds itself comfortably above the 61.8% Fibonacci but the index still has a way to go before it finds the levels last seen in March 2020 before the pandemic erupted, so further upside is still attainable in the short-term. That said, the index is facing some resistance in its push higher, as is normal after a strong recovery, so I don’t expect 8,740 to be a resistance for much longer as long as its price can remain above 8,624 in the next few sessions.
If we do see further bearish pressure then the rising trendline and the 61.8% Fibonacci are likely to offer good support between 8,500 and 8,450. If unable to hold, then the next important support can be found at the 8,000 mark, at which point the bullish trend will be under important stress.
IBEX 35 Daily chart
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FTSE MIB LEVELS
Overall, the Italian stock market has performed better than the Spanish one and is now just 70 pips away from the highs seen in March 2020. The FTSE MIB performance has been much more consistent since the recovery started back in April, and the index has had a good run since Mario Draghi became Italy’s new Prime Minister.
The FTSE MIB seems to have found resistance at the 24,415 level and is struggling to push higher, which is the theme with most European indices this week. The daily chart is showing overbought conditions in the Stochastic oscillator and the MACD is starting to retreat towards the 0 mark, so it may be the case that we see a pullback before any further upside can be attained. For now, short-term support can be seen at the 24,00 mark, but a strong bearish reversal could see the index pullback towards the 50-day SMA at 23,041 or the 76.4% Fibonacci at 22,770.
FTSE MIB Daily Chart
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
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