The main markets have been selling off for some time now, and the initial reaction to the strong NFP-numbers on Friday was an acceleration of the pull-back. The leading story has long been one of surging rates, caused by an inflationary pressure that is still way too high.
Suddenly, however, the U.S. markets reversed course, and finished the week with a relief rally. It is hard to say if this short-lived rally was merely technical in its nature as stocks in general appear to be in “oversold” territory. For example, the S&P 500 is down about 8% from its highs in the summer. Another possible explanation would be weaker than expected growth in average salary, which is seen as an important predictor for inflation going forward. With all the action that has happened this year, oddly enough the Dow index is now trading near its flatline for the year. The Dax, too, has retraced a lot since reaching a series of all-time highs in the summer, though the Dax remains in positive territory year-to-date.
The turmoil in Israel has set a negative tone for the stock markets at the beginning of the new week and has also led to a further boost to oil prices. Normally, such external “shocks”, caused by geopolitical events, will be priced in rather quickly. Of course, it depends on whether there’s further escalation of the crisis from hereon.
The financial calendar is quite empty for the week. The only data of note to be released are PPI- and CPI-numbers from the U.S. Both set of numbers are related to change in inflation.