Markets Off to a Strong Start | 10 February 2023

#SP500:

Equity funds got a $16 billion injection while bonds saw inflows of $7.8 billion, EPFR said, as investors showed conviction in both asset classes. The figures reflect flows prior to a series of key central bank decisions last week from the likes of the U.S. Federal Reserve, the European Central Bank and the Bank of England. There is growing belief among traders that inflation in the world's largest economy has peaked, reflected in recent comments from U.S. Federal Reserve Chair Jerome Powell who referred to "most welcome" disinflation. The bull and bear indicator - a measure of market sentiment - is at its highest level since March 2022. It has clocked up its biggest three-month surge since August 2020, driven by strong emerging market flows and strong stock market breadth.

Trading recommendation: buy 4077 and take profit 4195.

XAUUSD:

The FOMC is comfortable accepting the inflation has ceased, which is a micro-step toward a pause later this year. The FOMC statement reveals the Committee’s commitment to “ongoing increases in the target range” so the end of the hiking campaign will not likely happen until the second quarter. The fed funds upper bound is higher than the latest reading on the core deflator, the first time since the beginning of the global pandemic. As inflation cools and the economy slows, the Committee’s approach to the dual mandate will evolve and that evolution has already started with this recent decision. When traders compare the current statement with last year’s, investors should conclude the days of any hikes greater than 25 basis points are over for this cycle.

Trading recommendation: buy 1860 and take profit 1920.

#DAX30:

Business activity in the euro zone bounced back to growth in January, according to a survey which suggested the bloc's economy might again escape a contraction this quarter and that the upturn may accelerate. S&P Global Composite Purchasing Managers' Index, seen as a good gauge of overall economic health, climbed to a seven-month high of 50.3 last month from 49.3 in December, just ahead of a 50.2 preliminary reading. With price pressures down markedly in recent months, supply constraints easing and near-term energy market worries alleviated by subsidies, lower prices and a warm winter, business confidence has also lifted higher, adding to hopes that the upturn will gather steam in the coming months. This is a positive signal for the German stock market.

Trading recommendation: buy 15229 and take profit 15553.