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Markets awaits political cues, Italy delivers – Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Italian prime minister resigns over pandemic mismanagement.

Market risk sentiment worsens slightly today amid uncertainty about the viability of President Biden's promised $1.9 trillion fiscal stimulus package that still needs to go through the congressional approval process and could be delayed or blocked by Republican senators.

Although the North American economic figures have shown a favorable evolution in recent months, it is still pending to know the effects of the recent worsening of contagion cases on the economy, especially on consumption.

And in this sense, fiscal stimulus constitutes a determining factor in guaranteeing a smooth evolution.

FED Meeting

This week's Federal Reserve meeting will also play a role. Powell is expected to maintain his accommodative policy and commit to doing whatever it takes to support the economy.

In recent weeks there was talk in the market that the Fed could suggest its intention to reduce its asset purchase program given the possibility that the pandemic's evolution was improving and therefore that the economy would recover at a better pace.

But this possibility seems to have been ruled out and a current ultra-expansionary monetary policy for an extended period is the most widespread opinion among market participants.

As a result, purchases of US Treasury bonds return, and with it, the yield of the Tnote falls to the 1.04% zone from the 1.18% reached just two weeks ago.

This movement is typical of a market with a greater aversion to risk, mainly motivated by the worrying increase in contagion at a global level, measures to restrict mobility, especially in Europe, and the lack of short-term expectations of new stimulus measures both in fiscal and monetary level.

Global indices

Stock markets behave unevenly in Europe and the United States. Some indices' upward rallies are motivated by earnings releases from companies in some cases better than expected, especially in the banking sector and some technological ones.

Still, they are short-term rises that have not been able to resume a trend for the time being.

The US Dollar strengthens against all its counterparts due to the market's return to risk-off mode, acting in this case as a safe-haven currency. The upward effect on the US currency that the increases in Treasury bond yields had recently has disappeared to give way to a Dollar that is also strengthening but for reasons linked to market risk sentiment.

EUR/USD continues its slow downward path and the pivot level that constitutes the 100-hour SMA line has already broken down, having traded at levels close to 1.2100 during the start of the European session.

Now the primary support is still located at the 1.2065 area. The Italian political crisis with the resignation of Prime Minister Conte has contributed to the downward movement that the pair has experienced in the last day.

Sources:  Investing.com, Reuters.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.