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It’s been a busy week for markets across the board with plenty of volatility to enjoy and with the NFP still to come, there might still be more volatility yet. With plenty of action in US earnings as well as the February FOMC, BOE, and ECB meetings, we’ve seen a number of big moves. Chatting with traders ahead of the weekend, however, it seems the big move that most are focused on ahead of the weekend is the more than 14% rally in the MSCI world shares index. So, let’s take a look at what caused the move and, as ever, if you caught it. Well done! If not? There’s always next week.
 

What Caused the Move?

Further Fed Pivot

There have been two big drivers behind the move higher in the world shares index this week. The first is the developments we’ve seen in the central bank landscape. The Fed pivoted on rates again this month, opting for a lower .25% hike. Along with this, the bank sounded more constructive on inflation, noting that the disinflation process had started, with traders now eyeing just a further .5% worth of hikes before tightening comes to an end. This marks a sharp change from the aggressive hawkishness we saw over most of last year and helped lift stocks across the board.
 

Traders' Eye End to BOE & ECB Tightening

The BOE and ECB followed on Thursday and helped drive the stock rally higher still. While both banks hiked by a further .5%, both EUR and GBP fell as traders sensed that tightening is coming to an end. The ECB has signaled a further .5% hike in March, after which point it will decide any further adjustments on a data dependant basis. However, with both the ECB and the BOE acknowledging the declines in inflation, stocks rallied as traders judge that the coming months will bring an end to monetary tightening.
 

Upside Risks

Looking ahead, the near-term outlook is favorable for stocks. Further cooling of inflation and stronger signals that monetary tightening is coming to an end should help keep asset prices underpinned. While recessionary risks are noted, resilience in US data suggests the potential that the US might still avoid a recession, in which case stocks would receive a further lift.
 

Technical Views

MSCI World Shares Index

(Click on image to enlarge)

The breakout above the 525.21 level is strongly bullish for the index. With the rally currently seeing price above the 563.77 level, the focus is on a continuation higher towards the 595.86 level next. This will be the next major test for bulls. While the market holds above the 525.21 level, the outlook remains bullish near-term.

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