Price Action in Stock Markets Suggests Abating Tensions – Time to Buy?
Stock markets took a beating in February, but they are coming from the biggest rally in history. Most majors stock indices have doubled during the last two years, as the massive amounts of funds that have been flowing into financial markets since March 2020 have eclipsed everything we have seen before.
Moving averages have been doing an amazing job in providing support during this time, although they have retreated lower recently, as tensions in Russia have turned the sentiment negative. Although, judging by the price action in stock markets, it doesn’t seem like this is a war. We have seen larger crashes before, while in the last few days, we have seen a quick reversal higher suggesting that tensions are abating.
UK FTSE100 Index Daily Chart – The 200 SMA Keeping the Uptrend Going
We saw another strong bounce off the 200 SMA
UK FTSE100 is bouncing off the 100 SMA (purple) on the daily chart, while the S&P500 has also made a strong reversal in the last few days. So, all this conflict produced was just another dip in stocks and another buying opportunity. The global economy is still doing pretty well, as today’s manufacturing report from Europe showed.
Eurozone February Final Manufacturing PMI
- February final manufacturing PMI 58.2 vs 58.4 expected
- Prelim February manufacturing reading was 58.4 points
- January manufacturing PMI was 58.7 points
The reading just reaffirms positive signals with regard to Euro area manufacturing last month, as stronger demand and fewer supply issues (delivery delays) helped to spur output growth. Markit notes that:
“Don’t let the drop in the headline PMI distract from what should be viewed as a largely positive month for the Euro area manufacturing sector in February. Demand for goods is trending higher, with the rate of expansion accelerating to a six-month high. Underlying sales conditions are clearly strengthening as Europe overcomes the Omicron wave of COVID-19 and businesses step up their recovery efforts.
“Another positive move was in the suppliers’ delivery times gauge, which moved up during February to its highest since the beginning of last year – signaling the least marked deterioration in vendor performance since then. It was actually this move that pulled the headline PMI lower, but tentative signs of stabilization across supply chains is a good thing, because it will help production capacities increase and is what we need to see for inflation to cool.
“ Inflation is still running extremely hot, however, and price setters clearly carry substantial pricing power still. Strong demand for inputs, coupled with scarce supply, continues to drive vendor prices higher. In turn, firms are passing higher costs on to their clients. Although there was some welcome easing in input cost and output price inflation rates in February, they are both still among the fastest ever seen.
“Now, the Russia-Ukraine situation, which also carries the risk of dampening growth, adds fresh fuel to inflation risks, and we’ve seen Brent crude already moving higher in response. It’s going to take prudent macroeconomic policy management to re-anchor inflation expectations without denting the demand recovery too heavily.”
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