Stock Markets Stalling as Month, Quarter Draw to a Close
Global stock markets are trading back near their weekly lows on Friday, reversing the attempted rallies during the previous session, ahead of consumer activity data out of the US this morning. This latest pullback looks to be coming as a result of end of month, end of quarter position squaring as September draws to a close. The latest volatility is not a complete surprise, given that some investors will be looking to book profits after yesterday’s rallies, which were fueled by signs of improvement in the US labor market and continued analyst expectations of monetary stimulus that could be seen in China. Expect this volatility to remain choppy into the end of the Friday session, as shorter term, intraday positions are erratically influenced by the latest quarterly position squaring.
Spain Releases it 2013 BudgetIn addition to the encouraging jobs news in the US, investors were also given the latest outline of Spain’s 2013 budget, which calls for strict measures to reduce spending. The most likely reason for these strict provisions comes from the fact that Spain is now likely to formally request economic aid from the Eurozone. This is a positive for market sentiment and even with these latest daily declines, the S&P 500 is still on track to close in positive territory for the month, and this would be the longest streak of monthly gains since the end of the first quarter.
September’s uptrend has been driven mostly by the fact that analysts expect central banks around the globe to inject stimulus measures in an attempt to support manufacturing and jobs growth into the end of the year.
With long term expectations suggesting that the US Federal Reserve will keep interest rates at their historically low levels into 2015 (even in the appearance of inflationary pressures), some analysts are questioning the ability of central bank actions alone to boost growth and employment prospects. Some specific areas of strength can be identified, however, as the Fed’s third round of quantitative easing is targeted at the housing market. But in addition to the positive trends that will likely be seen in real estate markets, banks could also benefit from stronger balance sheets coming from increased mortgage sales. This could lead to some divergence in stock market performance in the coming months, as some sectors are more heavily exposed to these stimulus related areas than other sectors.
The S&P 500 is starting to stall into the end of the week, with prices now pressuring support in the 1420 region. If prices to manage to break and close below this level on a daily basis, the short term bias is downward, with the next target seen at 1392. This is where the 100 day EMA, historical support from the end of August and the lower Bollinger Band come into play but given the longer term positive momentum, this area can be seen as the first buy zone sub-1400 to target another test of the highs above 1470.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.