Talking Points: IBEX 35, Euro Stoxx 50, Delta Variant, US CPI IBEX 35 maintains crucial technical levels, and the recent decline spurred by virus fears continues unabated. Following a recent bounce off of the 200-day moving average, the Euro Stoxx 50 is poised to reach 4,100. Following COVID outbreaks, European Union nations reintroduce limitations. Following a significant breakout of the Delta variant, fears of new COVID restrictions have returned, causing European stocks to trade in a range. Market investors would have been watching Tuesday’s US CPI report, which showed the highest rate of inflation since 2009. Over the weekend, a semblance of normalcy was restored as the European Championship final was held in London, with over 60,000 spectators in attendance. In the end, the stark disparity in virus containment methods amongst European countries was emphasized. From July 19th, the United Kingdom’s government will abolish all pandemic restrictions, whereas France, Spain, the Netherlands, and Greece all announced tougher restrictions on Monday. Uncertainty about Europe’s economic openness may continue to weigh on major indices, worsening the market’s retreat from recent highs.
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The European Central Bank (ECB) will change policy guidance at its next meeting, according to European Central Bank President Christine Lagarde, who announced the news on Monday. The central bank recently announced a change to its inflation target, aligning itself more closely with the Federal Reserve. The ECB confirmed this week that it will tolerate temporary inflation readings above its 2 percent target. For nearly a decade, price growth has been below target, and the policy change attempts to increase future inflation expectations across the Eurozone. The ECB’s current advice is that “it will acquire bonds for as long as necessary and maintain current interest rates.” Market participants will keep an eye on the commentary and guidance, as any surprises might cause major market movement. Daily IBEX 35 Chart TradingView was used to construct the chart. As Spain confronts breakouts of the Delta COVID strain, the IBEX 35 Index has retreated from recent highs. Spain is seeking to crack down on new instances among younger generations after announcing new regulations on Monday. As Spanish officials try to control the two-week infection rate, new limitations have been imposed on nightlife places. Valencia, where local leaders have petitioned the courts to allow a curfew on communities deemed “at risk,” is a source of considerable concern. Despite the fact that the Spanish index is facing strong structural headwinds, the recent hold of the 0.786 Fibonacci retracement level at 8,673 could be crucial in the weeks ahead. The IBEX 35 could retrace some of its recent losses if the virus situation improves, with near-term resistance at the 50-day Simple Moving Average (SMA) of 9,057. TradingView was used to build the Euro Stoxx 50 Daily ChartChart. The Euro Stoxx 50 Index, unlike its Spanish equivalent, has held slightly below recent all-time highs of 4,163. Despite rising US inflation, predictions of slowing economic growth, and a change of ECB inflation targets, the index has held up nicely. The index retraced its 200-day SMA after its recent drop from all-time highs, and then surged back above its 50-day SMA. Should the index be able to break through the psychological barrier at 4,100, it appears that the index is preparing for a test of its highs. However, inflation fears and virus stories may continue to drive short-term sentiment. Additional restrictions, as well as other powerful headwinds, could continue to stifle investor confidence. —- Brendan Fagan is a DailyFX intern who wrote this piece. Brendan can be reached via the comments area below or on Twitter at @BrendanFaganFX./n
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