Stock Market Price Action Suggests Easing Tensions – Time to Buy?

Stock markets took a hit in February, but they’re coming off the biggest rally in history. Most major equity indices have doubled in the past two years as the massive amounts of funds pouring into financial markets since March 2020 eclipsed anything seen before.

Moving averages have done an incredible job of providing support during this period, although they have pulled back recently as tensions in Russia have turned negative sentiment. Although, judging by the price action on the stock markets, it doesn’t seem like a war. We have seen bigger crashes before, while in the past few days we have seen a rapid reversal to the upside, suggesting tensions are easing.

UK FTSE100 Index Daily Chart – 200 SMA Maintains Uptrend

We saw another strong rebound from the 200 SMA

Britain’s FTSE100 is bouncing off the 100 SMA (purple) on the daily chart, while the S&P500 has also made a strong reversal in recent days. So, all this conflict produced was just another stock drop and another buying opportunity. The global economy is still doing quite well, as today’s manufacturing report from Europe showed.

Eurozone final February manufacturing PMI

  • Final February manufacturing PMI 58.2 vs. 58.4 expected
  • February’s preliminary manufacturing reading was 58.4 points
  • The January manufacturing PMI was 58.7 points

The reading only reaffirms positive signals for eurozone manufacturing last month, as stronger demand and fewer supply issues (delivery delays) helped boost output growth. Markit notes that:

“Don’t let the decline in the headline PMI distract from what should be seen as a largely positive month for Eurozone manufacturing in February. Demand for goods is trending higher, with the rate of expansion accelerating to a six-month high. Underlying selling conditions are clearly strengthening as Europe weathers the Omicron wave of COVID-19 and businesses step up recovery efforts.

“Another positive move was the supplier lead times gauge, which rose in February to its highest level since the start of last year – signaling the smallest deterioration in supplier performance since then. it’s actually this decision that has lowered the overall PMI but tentative signs of stabilization in supply chains is a good thing as it will help production capacities to increase and that’s what we need to see so that inflation is cooling.

Inflation is still extremely hot, however, and price makers clearly retain substantial pricing power. Strong demand for inputs, coupled with limited supply, continues to drive up supplier prices. In turn, companies pass on the higher costs to their customers. While there was some welcome easing in input cost and output price inflation rates in February, they are still among the fastest on record.

“Now the situation between Russia and Ukraine, which also carries the risk of dampening growth, adds new fuel to inflation risks, and we have already seen Brent crude rise in response. It will take careful management macroeconomic policy to reanchor inflation expectations without weighing too much on the recovery in demand.

S&P500

Eleanor C. William