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Equities Firmer Ahead of US CPI 

Global equities benchmarks have seen a mostly positive start to the week ahead of today’s headline US inflation data. Markets came under pressure at the open yesterday as traders reacted to forecasts of an increase in monthly inflation, projected at 0.5% from -0.1% prior. However, annual inflation forecast to cool further to 6.2% from 6.5%, initial concerns were dampened. On the back of the recent bumper US jobs report, however, and the subsequent stream of hawkish Fed commentary, any surprise strength today will likely see a sharp unwinding of stock prices globally as traders look toward the March FOMC with increasingly hawkish expectations.

The FTSE has been the best performer again this week so far with the index breaking out to fresh all-time highs yesterday. Weaker-than-forecast UK wage growth data today should help keep the index supported ahead of UK CPI tomorrow, supporting the view that inflation has likely cooled again and thus taking a little pressure off the BOE.

In Europe, plunging gas prices are being welcomed by businesses and consumers alike, helping support economic sentiment there. Traders are already beginning to look ahead to a potential ECB pivot on the back of the March meeting which should help keep asset prices underpinned while that narrative remains in place.
 

Technical Views

DAX

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The rally in the DAX, framed by the rising wedge formation off last year’s lows, has stalled for now into a test of the 15642.76 level. While 15163.41 holds, however, the focus remains on a continuation lower. However, bearish divergence in momentum studies is worth noting and any break of the current support and rising wedge lows will open the way for a move down to 14703.98 next.

S&P 500

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The rally in the S&P, framed by the bull channel off last year’s lows, has stalled for now into a test of the 4153.50 level. This area has held as resistance since later 2022 and with momentum studies weakening, risks of a drop back down towards 3910 are seen unless bulls can quickly breach the level, putting focus back on 4305 next.

FTSE

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The index continues to break new ground this week with price breaking out above the prior highs at 7904.7. We are seeing bearish divergence into these highs though while above the 7678.8 level the focus is on a continuation higher, in line with the bull channel.

NIKKEI

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For now, the index continues to hold around the 27422.9 level just ahead of the intersection between the bearish trend line from highs and the retest of the broke bull trend line. While this area holds as resistance, a correction lower cannot be ruled out. 

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