The global rally of equities discontinued on Tuesday, despite the continued growth in bond yields. The strategists of large banks have a suspicion that a correction in risky assets is approaching. For example, Citigroup expects a 10% pullback in US stocks, which seems highly probable as the markets are balanced on a risk-reward basis.
But no one expects a sharp fall. The market continues to remain optimistic, as the economy is gradually emerging from the recession, and the soft monetary policy will support bulls on the stock markets for at least another year.
The positive data from the US manufacturing sector continue to be received. The NY Empire State Manufacturing Index increased the most in February in five months to 12.1 from 3.5 a month earlier. This was mainly due to the rise in prices for raw materials from 12.3 to 57.8. The Producer Price Index increased by 8.2 to 23.4, both values are the highest since May 2011. More and more manufacturers expect higher raw material costs and the continued growth in producer prices over the next six months. In addition, new orders increased from 6.6 to 10.8 and the employment rate increased slightly too. Optimism about economic conditions in the next six months among manufacturers increased to 34.9 from 31.9 earlier.
Against this background, the American dollar moved to strengthening. Treasury yields were at their highest level since February last year, reaching 1.33%.
There is also positive data from Germany. The ZEW Indicator of Economic Sentiment increased by 9.4 points this month reaching 71.2 compared to the previous month, well above market forecasts. This is the highest indicator since September as markets are optimistic about the future of the German economy, which is expected to return to growth over the next six months. In particular, a significant recovery in consumption and retail trade is expected, accompanied by higher inflationary expectations. But at the same time, the index of current conditions fell to -67.2 from -66.4, indicating a slow recovery at the beginning of the year.
Main market quotes:
- S&P 500 (F) 3,928.12 +0.37 (+0.01%)
- Dow Jones 31,522.75 +64.35 (+0.20%)
- DAX 14,018.55 -46.05 (-0.33%)
- FTSE 100 6,728.85 -20.01 (-0.30%)
- USD Index 90.737 +0.234 (+0.26%)
Important events:
- UK Consumer Price Index (y/y) (Jan) at 09:00 (GMT+2);
- US Core Retail Sales (m/m) (Jan) at 15:30 (GMT+2);
- Canada Core Consumer Price Index m/m) (Jan) at 15:30 (GMT+2);
- Publication of the FOMC minutes at 21:00 (GMT+2).
