EU Stoxx 50, Moderna Covid-19 Vaccine, Stagnating Economic Recovery – Talking Points:
- Equity markets broadly gained during APAC trade as investors cheered the results of the two US Senate run-off races in Georgia.
- European equity markets may lose ground in the coming days despite the regulatory approval of Moderna’s Covid-19 vaccine.
- EU Stoxx 50 index at risk of short-term pullback as RSI divergence hints that recent topside push may be running out of steam.
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Equity markets surprisingly gained during Asia-Pacific trade despite a temporary lockdown on Capitol Hill that disrupted the certification of the US presidential election. Australia’s ASX 200 index soared 1.6% higher as the nation’s two most populous states – New South Wales and Victoria – recorded 0 new cases of the novel coronavirus.
S&P 500 futures rose 0.8% as investors warmed to the idea of more extensive fiscal support under a Biden administration after the Democrats proved victorious in both Senate run-off elections in Victoria. In FX markets, the cyclically-sensitive Norwegian Krone and Canadian Dollar largely outperformed, while the haven-associated Japanese Yen slipped lower.
Gold clawed back lost ground, while silver prices held relatively steady, despite yields on US 10-year Treasuries climb above 1.05% for the first time since March 2020. Looking ahead, Euro-area inflation and retail sales data headlines the economic docket alongside US jobless claims figures for the week ending January 2.
Market reaction chart created using Tradingview
Cumbersome Vaccine Rollout Could Weigh on European Equities
Europe’s benchmark EU Stoxx 50 index has pushed to its highest levels since February 2020 in recent days, as investors cheered the regulatory approval of Moderna’s coronavirus vaccine.
However, a flurry of disappointing economic data and the cumbersome rollout of vaccinations throughout the trading bloc could gnaw at regional risk appetite in the near term. The Markit Composite PMI release for December slipped to 49.1 (est 49.8), as activity in the services and manufacturing industry slowed in the wake of tightening Covid-19 restrictions.
The total number of vaccine doses administered per 100 people in several European nations also drastically lags behind the rates seen in Israel, the United States and the United Kingdom. This threatens to hamper the region’s economic recovery, as health authorities warn that it will take several months before the vaccine will have a noticeable impact on infection rates.
Therefore, deteriorating health outcomes may weigh fuel a period of risk aversion in the coming days and weigh on the performance of regional stock markets.
EU Stoxx 50 Index Daily Chart – RSI Divergence Hints at Pullback
EU Stoxx 50 index daily chart created using Tradingview
From a technical perspective, the EU Stoxx 50 index may be at risk of a near-term pullback, as prices challenge a key resistance range at 3600 – 3636.
Bearish RSI divergence, in tandem with the notable flattening slopes of the 8-, 21- and 34-day exponential moving averages, suggests the recent uptrend may be running out of steam.
Therefore, failure to hurdle key resistance at the 61.8% Fibonacci (3636) could trigger a reversal back towards the monthly low (3509). A daily close below probably opening the door for a more extended pullback towards the trend-defining 50-DMA (3420).
Alternatively, gaining a firm foothold above Fibonacci resistance would likely signal the resumption of the primary uptrend and carve a path for buyers to probe the record high set in February 2020 (3868).
— Written by Daniel Moss, Analyst for Finance Prop
Follow me on Twitter @DanielGMoss
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