Weakness in Economy, Pandemic fears decrease
Ahead of Jackson Hole Symposium and after a descending week, today at the beginning of the week, and with surprisingly weak economic data, we saw new records in the markets.
Today we had Manufacturing and Service PMI numbers and in all advanced economies and all of them we missed the expectations. However, Stock markets raised surprisingly and even they touched new records in the US.
In Asia, positive sentiment started when Chinese officials announced the first day with no internal infected Covid-19 cases. With decreasing the fears of further spread of the virus, which was positive for the stock markets, investors focused more on the economic data, however economic data also was missing and disappointed the market participant. But with negative numbers in front of estimates, we got more confident in holding the current dovish policies of FED and other central banks to support the economy. In the past weeks, with weaker economic data, now we are pricing more on the next GDP numbers to miss the expectations.
On the other hand, a sharp drop of last week created some buy opportunities in deeper prices, both in US and Asian markets. By activating these positions, markets started to recovery and higher numbers were seen.
Since this recovery and new gains mostly were based on market sentiment and not based on any actual decision and economic data, we are waiting for correction from these levels, ahead of the FED chair speech on Friday.
We also should not forget the effect of Thursday`s Final Q2 GDP numbers and Friday`s PCE data.
From the technical point of view, in the Daily chart SP500 still moves in a clear uptrend, moving above both 20 and 50 DMA and RSI at 62. Currently, 20 and 50 DMA, respectively at 4,429 and 4,356 are the main support levels. Any downtrend needs to breach under 50 DMA, otherwise in long term, still we can see the next highs above today`s records.