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Old 10-02-2021, 13:05
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Default Re: Tickmill UK Fundamental Analysis

World equities at fresh all-time highs


US equities sustained elevated mood on Tuesday closing near their all-time highs, passing the baton to Wednesday trading. SPX futures tested new all-time high at 3925 today, but trended lower later during London hours. European indices inched higher as well, but with less confidence, as news on lockdowns in the EU hinders "spreading wings", with no easing of restrictions in sight.

The rally is propelled largely by two growth catalysts – developments on the story with US extra government spending ($1.9 tn. stimulus bill) and quickening vaccinations in the United States.

The MSCI Global Equity Index, which tracks stocks in 49 countries, rose 0.27% renewing all-time record. Investors are not afraid of a potential tipping point, ignoring pronounced risk of overbought, judging by extreme RSI deviation:





After the leg of rapid rally since the start of the February, it would be great to see some intermittent “reset” in the of form of bearish retracement, however, as I wrote earlier, if there is a correction, it should be a quick, short-term, transient shock - it does not seem that the rally since the beginning of February were based on some indecision, on the contrary, it really looks like a new episode of the bull market thanks to the upcoming US stimulus. In addition, the search for yield (growing overweight to risk assets in portfolios) appears to be strengthening consensus in the markets (due to extremely low interest rates), and deviating from this consensus means losing a profit opportunity. Basically, there is nowhere to escape from the market (better place to store wealth) currently.

Among the short-term catalysts for the growth of risk assets, we can note the expectations of favorable hints from the head of the Federal Reserve System Powell, who will speak late tonight. Since the situation with the stimulus package of $1.9 trillion is gradually becoming clearer, signals about participation are expected from the Fed. The US government’s plans for huge new borrowings in the debt market (in order to finance stimulus) are unlikely to please the current holders of government bonds.

The market will wait for signals that the Central Bank will help the government to safely borrow funds on the debt market and avoid unwarranted move in yields. To do this, it will be necessary to "help" investors to absorb government bonds from the Treasury market, which may ultimately lead to an additional increase in money supply and a weaker dollar. Another view on rising money stock in the US is reserves (a form of money) of the US depository institutions with the Fed which continue to rise despite no aggressive QE from the Central Bank:




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