Equities Climb as Taper Odds Fall on Covid Concerns

Key Talking Points:

• US FDA approval of Pfizer vaccine and a possible less hawkish Fed give equities a boost
• DAX 30 and CAC 40 key levels to watch

So stocks are on the rise again. It’s not really surprising as that has been their general trend for the last year and last week’s pullback only served to attract new buying interest to what seems to be an assured bullish asset.

The weakness in stocks last week was mostly attributed to rising growth and covid concerns, but also to the hawkish Fed minutes that hinted towards tapering of assets in the next few months. This week it’s all about how these rising covid cases are likely to make the Fed less hawkish at the Jackson Hole Symposium this week, even delaying the announcement of tapering which was almost a guarantee as far as economists were concerned. And one thing is for sure, stocks love lose monetary policy and high capital liquidity in the market.

There is also the news that the US FDA has granted full regulatory approval of the Pfizer BioNTech vaccine, which is likely to lead to a higher vaccination rate in the US, where the spread of a new wave of Covid-19 is gaining pace. But the move higher had already gathered momentum prior to this, as Fed member Kaplan had already sweetened the day for bulls when he reminded investors on Friday that the Fed is very much data–dependent and that a higher rate of infections may lead to adapt their policy accordingly, therefore feeding speculation about a more conservative Federal Reserve at Jackson Hole, which seems to be the main driver at the moment.

This has put the DAX 30 back on track to achieve a new all-time high above the 16,000 mark. The worst day for the index last week was Thursday but the performance from Friday and Monday has mostly undone the negative sentiment from last week, which shows steady gains with higher lows as buyers attempt to keep the price above the 20-day and 50-day moving averages. The topside resistance lies between 15,980 and 16,030 and so far this week the index has struggled to catch some momentum above 15,930, which is a key area to break in today’s session if further gains are to be achieved this week.

The CAC 40 is also attempting to recover some gains but is struggling to keep its momentum going. The Paris index was one of the worst-performing European indices last week as the luxury goods and automotive sectors were dragging it down, on the back of concerns about growth stemming out of China and a shortage of semiconductors that are essential to vehicle production. This issue is likely a little more persistent than just concerns about recent economic data, so the CAC 40 may drag behind a little if optimism in the industry continues to fade. For now, buyers should target to get back above 6,800, but the bullish trend is likely to remain intact as long as the index stays above 6,200.

DAX 30 Daily Chart

CAC 40 Daily Chart

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin