Markets See Sharp Declines Followed By New Highs
2022.10.14 05:49
The US CPI figure has finally been confirmed, and it’s much higher than markets had expected. This initially prompted a strong sell-off in equity markets, but prices then unexpectedly recovered and increased to a 1-week high.
Over the past 48 hours, the US has released three inflation-related indexes – the , , and . All three have indicated that inflation is unlikely to have peaked or at least is not declining at the rate economists would have liked. Economists have also predicted that October’s CPI figure is unlikely to show negative figures, considering the rise in fuel cost that we’ve seen in the first two weeks of October.
The market showed a strong “risk on” sentiment towards the end of yesterday’s US session, which has also continued this morning. US and European equities have risen along with Asian stocks, but traders should keep in mind that the assets had declined for six consecutive trading days. Strong buyer sentiment can also be seen in other markets, such as energy. increased by 4.30% after a short-lived decline. So what is behind the bullish price movements?
S&P 500 – Technical View
When looking at the price movement of the , we can see a clear indication of panic selling which brought the price down almost to a 2-year low. After the US CPI and Core CPI figures were released, the asset declined by 4.0% within only 75 minutes.
However, it then fully corrected and even crossed into a new weekly high. The bullish movement measured 5.88% and formed clear higher highs and higher lows. When looking at oscillators, traders are getting clear signals that the price is ‘oversold’ but have had no confirmation from the price yet.
So what caused the decline as well as the rise in bullish sentiment? The CPI figure was predicted to come in at 0.2%, and the Core CPI at 0.4%. However, the Bureau confirmed that the CPI was double what was expected, and the Core CPI was at 0.6%. The day before also showed that the PPI had increased from -0.1% to 0.4% in September.
Economic figures released over the past 48 hours have caused investors to fear that the Federal Reserve will continue to increase rates for more than just 1 or 2 months. It is almost certain that the regulator will increase the rate by 0.75% and possibly even opt for a record 1% hike. The combination of high inflation and restrictive interest rates can be detrimental to consumer spending, company profits, and the US stock market.
However, investors are questioning why the price of the S&P 500 and stocks in general corrected so strongly after the release. Economists have advised that it could be related to “short covering” and triggering pending orders. Both indicate that the upward price movement is temporary, but it is vital that traders continue with their price analysis.
USD/JPY – Technical View
The pair increased in value by a further 0.30% this morning and has formed its 8th bullish consecutive day. Over the eight days, the exchange rate has increased by 2.30%, breaking into a new price high consecutively.
When looking at technical indicators, we can see clear signals that the price is within an upward trend that could continue but may also be ‘overbought.’ However, investors are extremely cautious that the Japanese Federal Government does not once again opt to intervene in the currency market.
Finance Minister Mr. Suzuki confirmed that Japan is ready to conduct another foreign exchange intervention in the event of a significant weakening of its national currency. We, of course, do not know at what price this intervention may take place, but some have speculated it may be at 151.000. Of course, an intervention can create a lot of unnatural volatility and risk for leveraged traders.
