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The pandemic still affects equities, but E.U.'s economic forecasts are optimistic - Market Overview

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
The day begins with an increase in risk aversion in the market reflected in the price of the USD/JPY.

The pair fell below the support levels of 110.40, threatening to undo the last uptrend.

This change in market sentiment could be due to the worsening evolution of the pandemic after higher numbers of infections and more restrictive measures were seen in countries such as Japan.

However, yesterday we learned about the latest E.U. forecasts. Generally, the European Union showed a more optimistic tone given the acceleration in vaccination and the progress in the economic reopening. Thus, it revised the Eurozone’s GDP for 2021 to + 4.8% and + 4.5% for 2022, respectively.

The E.U. expects the European economy to reach pre-pandemic levels in the fourth quarter of 2021. However, they warn the speed of recovery could be very different depending on each country. Although some states might reach pre-crisis levels in the third quarter, it might take longer for others in a context where uncertainty and risks remain high. The European stock indices have reacted lower despite the positive forecasts.

The German DAX index lost 1.5% at the opening, and it finds itself still far from relevant support levels in a wide range between 15,100 and 14,900.

One factor that may influence the evolution of the market is ECB's strategic POV that Lagarde will present today ahead of the expected date of September. ECB’s president is expected to announce a new inflation target of 2%.

This could be seen as an important element in monetary policy. Although it might guarantee a policy of low-interest rates for a more extended period, it can also generate fears of an inflationary process for some investors, potentially affecting their investment decisions in the stock markets.

The Fed Minutes for June published yesterday in the United States did not provide any notable news. Fed’s newest position can still be considered dovish, in the face of a still incomplete recovery, mainly on the labor market side and a short-term inflation rebound that they believe to be punctual.

The inflation figures published next week for both the CPI and the PPI could be essential to know if the price increases are temporary or a sure thing. The market expects an official tapering announcement as soon as the next Fed meeting in August, which could be implemented by the end of the year.

Sources: Bloomberg, reuters.com.

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.