Friday of sorrows and Monday … of resurrection? Stock markets in Europe staged a bullish start to the week to try to retaliate from the strong bearish bump they experienced on Friday, in which they pierced the first supports they faced. Some comments from institutions and experts in the field pointed out that the Omicron variant of the virus could be less deadly than previous strains, although more contagious, which served as a release for a market that took advantage of the situation on Friday to make a strong collection of benefits just weeks away from a good year for global equities.
The gains were therefore imposed on the main selective stock markets of the Old Continent with the Ibex and the FTSE Mib leading the increases by rebounding more than 0.6% compared to the rise close to 0.2% in other indices such as the Dax. On the other side of the Atlantic, the great Wall Street indices rebounded in the middle of yesterday’s session close to a percentage point.
A movement that, however, did not serve more than to mask the bearish connotations of Friday’s fall and that leaves the stock markets still far from the highs at which they traded at the beginning of the month. In fact, the return / risk equation is much more attractive now than it was just a few days ago.
“I will never tire of repeating that within primary upward trends, such as the one defined by the stock markets on both sides of the Atlantic, it must be seen as a great opportunity to buy eventual falls that move the indices 10% away from their previous maximum” , says Joan Cabrero, technical analyst and advisor to Ecotrader, who highlights that with the declines on Friday, the overbought that threatened the market in recent weeks has been eliminated.
In this sense, from the closing levels of this Monday to those highs for the year, the upward potential of the market – technically speaking – would be around 7.4% if the EuroStoxx 50 is taken as a reference, which would seek 4,415 points. For its part, the downward trend to return to 3,900 integers (the minimum for October) is 5% .
The same proportions appear in the German Dax 30, which is the selective in which the technical levels are best identified and which remains the indicator that Ecotrader has postulated as the one that can alert about a moment of weakness in the rest of the indicators continental. Until the highs of the year there is a distance of 6.5%, while the risk of falling to 14,800 integers is barely 3%.
“Be that as it may, the important thing is to be aware that the closer we get to those 14,800 of the Dax or the 4,000 of the EuroStoxx 50, the more attractive it will be to buy a European stock market and increase exposure to equities,” says Cabrero while noting that while not lose those levels the upward trend will remain “indisputable”.
An overreaction?
“Investors are especially concerned with the high number of mutations of this new variant, because this is what puts the efficacy of the vaccine at risk,” they explain from Julius Baer. “However, it is not yet known how lethal and contagious it is, something that we will not know for a few weeks,” they add. The first comments of the experts point out that the effects of this variant are milder than those of the previous ones and that, even, antiviral pills have good results on it. “For this reason we believe that it may be a good time to increase exposure to quality companies, particularly in the health and technology sectors, as well as financial ones, avoiding, however, doing so in the sectors most affected by the restrictions of the pandemic” they argue.
From Renta 4 they point out that the world financial markets overreacted on Friday thanks to the ability of the WHO to report on the new variant, which made investors flee from their risk positions and go to safer assets .
Also the pharmaceutical companies that make the antidote to the virus were quick to demonstrate, arguing that they could adapt their vaccines to the new variant in a short space of time , if necessary. Moderna was scoring nearly 10% (along with more than 20% on Friday) part-time and Pfizer 1% (after rising 6% on Friday).
The debt market also calms down
The flight of equity investors from riskier assets led to heavy purchases of sovereign bonds, especially in large Western economies, contrary to the sales trend that had been imposed because of the withdrawal of stimuli by central banks. Yesterday, however, calm returned to fixed income operations, where investors again sold positions, raising the required return from the Bund to 0.3%.
