Stocks Held Up Between Opposing Factors 

Risk markets have had a tricky start to the week with traders caught between two opposing market forces. On the one hand, a stronger USD and higher yields is acting as a headwind to asset prices. However, growing optimism around easing covid restrictions in China is helping underpin sentiment. For now, the two inputs are keeping asset prices fairly stifled, particularly in the US. Traders will now be monitoring both stories across the week with a view to how price action is likely to unfold in coming weeks heading towards the end of the year.

In the US, better than expected labour market data on Friday has thrown something of a spanner in the works for equities bulls. With wages seen rising well above forecasts in November, there are clear signs that inflation might not yet have peaked. In which case, the outlook for US rates reverts back to the potential need for the Fed to lift rates above current peak projections.

Looking across the rest of the week, Friday’s US PPI numbers will be closely watched for further clues as to how the November CPI number is likely to come in. Given that CPI will be released a day ahead of the FOMC rate decision, there is plenty of two-way risk in the run up to the meeting with USD and equities likely to be quite volatile and sensitive to incoming data, particularly now the Fed is in its pre-FOMC blackout period.

Technical Views

MSCI

The world stocks index shows price is currently stalled around the latest test of the 518.10 level and bear channel top. Price has been attempting to break out above the level over the last month but is still held up for now. Waning momentum studies readings suggest risk of a correction near-term. However, while price holds above the 452.09 level, focus remains on eventual break higher towards 563.77 level.