Yesterday’s drops in stock indices in the USA and Europe were not merely a cosmetic “descent” to slightly different levels. A daily negative candlestick on the German DAX brought the largest single-session correction since the beginning of this year. The chart setup is negative, but key levels have not yet been breached. On the S&P 500, a “double top” is visible, similar to the industrial Dow Jones. Is this the beginning of a larger correction in an “overheated market”?
Yesterday, in reality, nothing special happened. For investors in Europe, it was a post-holiday session, the first in the new month and in the second quarter of this year. In the morning, we received the final PMI data from Europe, which turned out to be slightly better than expected, but at the same time weaker than previous values. For the eurozone, the indicator was revised to 46.1 pts from 45.7. The industry is still limping in Germany, France, or Austria. Indices above 50 pts are found in southern European economies such as Greece, Spain, or Italy. At the time of publication, the market behaved relatively calmly. The German Dax started to decline only after 2:30 PM. A bit earlier, at 2:00 PM, data on German CPI inflation, which decreased to 2.2% from 2.5% year-on-year, came to light. Which was in line with expectations. The HICP index fell a bit more sharply to 2.3% from 2.7% y/y in the previous month. Inflation expectations in Europe among consumers in the short term also improved. For the next 12 months, they amount to 3.1%. Previously, it was 3.3%. This is the lowest level since the outbreak of the war in Ukraine (February 2022).
From the American data, attention was focused on the JOLTS survey, which showed the number of job openings and worker turnover. The result of 8.76 million was close to consensus. The previous result was revised down from 8.86 million to 8.75 million. In the USA, industrial orders also increased, rising by 1.4% month-on-month. Orders for goods excluding transportation means grew by 0.3% m/m (0.5% was expected) and for durable goods by 1.3% m/m (1.4% forecast). The data show the strength of the American economy. Wall Street’s interpretation was as follows: the economy is doing well, so the Fed may not hurry with rate cuts. As a result, the Dow Jones and Nasdaq Composite lost 1% and the S&P 500 0.7%. If the next data (ADP, ISM for services, NFP) turn out to be strong, yesterday’s declines may be the beginning of a larger correction in the stock markets.
By Łukasz Zembik, Oanda TMS Brokers
