Key Talking Points:
DOW JONES REACHES ALL-TIME HIGH
And just like that, the Dow Jones has topped the infamous 30,000 line, an area that has been talked about for several months. It only took a bit of excess liquidity, political breakthrough and hopeful vaccine news to get it there, but traders are likely feeling accomplished right now. Question is, where do we go from here? The S&P 500 is also nearing all-time highs and the Nasdaq is recovering some buyer support as capital is beginning to rotate back into tech stocks. So we can say that US stocks are now currently pushing other equity markets higher, well, that and a generalized risk-on sentiment
The flow into European markets has been quite clear following the coronavirus outbreak, especially as we’ve seen a weaker US Dollar during the latter part of the year. The DAX 30 has been the breakthrough European index this year, being able to amass a return from the March lows that is easily comparable to any of the three major US indices. Nonetheless, the main theme since the coronavirus outbreak has been a positive start to the European session if US stocks dictated as much overnight, despite domestic factors determining performance throughout the rest of the day.
DOW JONES – DAX 30 relative performance
FTSE MID 250 OUTPERFORMS FTSE 100
Interestingly, the FTSE Mid 250, which comprises smaller-cap UK stocks, has outperformed the FTSE 100 in its recovery from the March meltdown, being able to reach the 76.4% Fibonacci retracement level, whilst the UK’s main index continues to struggle to push above 61.8%. This is to be expected in part because the smaller-cap index has a broader diversification of industries and a flatter weighting structure, whilst the FTSE 100 is heavily weighted in some sectors, like oil and gas, which has been underperforming in the wake of the coronavirus pandemic. Also playing a part is the Pound’s influence on earnings, given that almost 70% of revenue for the FTSE 100 comes from international sources, not ideal when there is a weakening US Dollar and a strengthening Sterling.
FTSE Mid 250 Daily Chart
On the Daily chart, we see that the FTSE 250 index has been consolidating a strong upward momentum, pushing above the 76.4% Fibonacci retracement level at 19,680, which is acting as a short-term support for the daily candlestick. Further support can be found at 19,388, a horizontal line that has been revisited several times in the last week.
Moving averages show a strong case for further upside, with a recent cross of the 50-day and 100-day averages over the 200-day average. The price is also above all three main averages after the surge seen at the beginning of November. Further consolidation of bullish momentum might face some resistance at 19,967, where an attempt to recover from the initial coronavirus-led falls was halted, before buyers are able to focus on the 20,000 mark.
Focusing on sector performance, leisure and travel-related stocks are leading the way as positive vaccine news is increasing hopes of a swifter recovery to the tourism sector, with Cineworld (+125%), SSP Group (+96%) and TUI AG (+82%) being the main drivers this month. On the opposite side of the spectrum, precious metals miners are weighing down the index as gold and silver take a hit from risk-on sentiment.
GOLD PRICES HIT FOUR MONTH LOW
It hasn’t been a good quarter for gold so far, with spot prices falling 13% since the all-time high reached in the month of August. Risk-on sentiment hasn’t helped the yellow metal as it is perceived as a safe-haven from risk, but low yields and a falling US Dollar had everyone thinking that gold prices would maintain buyer support as an inflation hedge.
But a sustained break below 1,900 was threatening a recovery in gold prices after they slipped more than 4% on the Pfizer vaccine news, and yesterday we saw gold head for a new four-month low on the 1,800 mark, which seems to have held as an area of support for now.
XAU/USD Daily Chart
— Written by Daniela Sabin Hathorn, Market Analyst