Uncertainty spreads through the market

By: Miguel A. Rodriguez

10:21, 12 April 2022

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The main culprit is the epidemiological situation in China, where lockdowns are increasing and threaten a deep slowdown in the Chinese economy that would affect the global economy.

Additionally, the possibility of a worsening supply chain would lead to a setback that could cause new upward pressures on prices.

The Hang Seng index fell 3% in this situation despite the efforts of the Chinese government, which has already begun to implement stimulus measures with interest rate cuts and relaxation of regulatory measures.

Nasdaq fell around 2% on Monday, as the main Wall Street indexes closed the session in the negative. In this case, the rise in treasury bond yields increases the pressure, which weighed on mega-cap stocks such as Microsoft and Apple, with investors nervous before the inflation data that are published today.

Market-leading growth and technology stocks, backed by record-low interest rates, have been under pressure since late March on signs from the Federal Reserve that it will aggressively raise rates to rein in runaway inflation.

Today's CPI data is expected to show that US consumer prices rose to a new four-decade high of 8.5% in March on a year-on-year basis after reaching 7.9% in February, as the conflict in Ukraine increased energy costs.

The problem investors face is that for stocks to gain momentum at this time, it would be necessary to know where the peak of inflation is, and at the moment, there is not enough data to have a reliable assessment.

The only positive but still inconclusive data in this regard is the drop in crude oil price, which is being pressured downwards by the IEA decision to release part of the strategic reserves of the United States and other countries. Also, forecasts predict a drop in demand for crude oil from China due to the economic slowdown that the Asian giant is suffering.

Technically, oil has traded below the major support zone at 94.70 and is approaching the 100-day moving average around 92.40. A close below this latest level would clear the way down to the next benchmark, around 85, something that the stock markets would certainly welcome.

Sources: Bloomberg, Reuters.

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