IBEX 35, Euro Stoxx 50, Jackson Hole, Eurozone, Federal Reserve – Talking Points
- IBEX 35, Euro Stoxx 50 point higher, fueled by easing taper fears
- Delta variant remains rampant, Spain continues to report higher cases
- Jackson Hole takes center stage, markets eagerly await any comments on policy
European stocks ended Tuesday’s session lower as major continental indices look to rebound from their worst week since February. Market participants are slowly moving an eye towards the Fed’s Jackson Hole Economic Policy Symposium at the end of the week, with many looking for clarity on the central bank’s taper timeline. Geopolitical tensions, Beijing’s continued crackdown on tech companies, and ever-present worries about the spread of the Delta variant continue to dominate the headlines. While the path of least resistance likely remains tilted higher, the aforementioned headwinds may push back on a renewed attempt to retest recent highs.
The IBEX 35 Index rebound remains intact following a robust sell-off during June and July. The swift retreat saw the index fall from a post-Covid high of 9,310 to test it’s 200-day moving average below 8,400. The index’s rise mirrors the recovery of the domestic economy, which has benefited from an influx of vaccinated tourists. Despite lingering fears over the Delta variant, Spain has vaccinated over 66% of its population. Should Spain rejuvenate sentiment surrounding its vaccination program, the IBEX 35 index could make a run towards the June high of 9,310. With the index having confirmed a close back above the 50-day moving average, a move higher may be on the cards.
IBEX 35 Index Daily Chart
The Euro Stoxx 50 Index may look to make a fresh move higher having tested and bounced off the 50-day moving average last Friday. The index looks set to benefit from a potential delay in the Federal Reserve’s taper timeline, as continued central bank stimulus would represent a significant tailwind for risk assets. While fears had crept in surrounding a potential Fall 2021 taper from the Fed, it would appear those fears have eased significantly.
Robert Kaplan, President of the Fed’s Dallas branch and notable hawk, spoke about how the Delta variant was causing him to potentially rethink his taper timeline. This is something that seemed to have caught most policy watchers off guard. Near-term sentiment will most likely be driven by the events and comments that unfold at the virtual Jackson Hole symposium. A lack of sudden surprises from policymakers in their remarks may see risk assets continue to pointing higher, including the Euro Stoxx 50.
Euro Stoxx 50 Index Daily Chart
As is the fear globally, the Eurozone economies may be showing signs of slowing. This is likely putting the bullish case for regional equities to the test in the near-term. The flash composite purchasing managers index (PMI) for the Eurozone came in at 59.5, down from 60.2 in July. While the reading above 50 indicates growing economic activity in the manufacturing and services sectors, the month-over-month decline may cause fears of “peak growth” to once again permeate into the minds of investors. The Eurozone may then follow the steps of China and the United States in reporting slowing growth, compounding the downward revision to global expansion estimates.
Eurozone Economic Calendar
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— Written by Brendan Fagan, Intern
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