Market sentiment improving – Danske Bank

After a rollercoaster day, S&P500 closed 1.75% higher yesterday after the big correction Monday and the improved sentiment is also reflected in Asian markets, where most equity indices are flashing green (although the indices in Japan and Hong Kong fell during the night after a very strong opening), points out Senior Analyst, Mikael Olai Milhøj at Danske Bank.

Key Quotes

“S&P500 future for March is trading unchanged this morning. Also VIX recovered after a bumpy day and is now at 30, which is still elevated compared to what we are used to but below the 50 peak yesterday. It is worth noting that the higher equity volatility has not spilled over significantly to other markets yet – the reason is probably that investors betting on calm markets (low VIX) have lost money causing VIX to rise even further. US 10- year Treasury yield has declined a few bp this morning to 2.78% after it recovered to 2.80% yesterday. Brent oil is trading at 67.4 dollars per barrel and EUR/USD has stabilised at 1.2388.”

“While it is difficult to say whether the market turmoil is over for now, we still believe that the correction is more technical than fundamental and we remain overweight in equities. The business cycle still looks strong, as PMIs are still high and optimism is high among businesses and consumers. We still believe the central banks will only tighten monetary policy gradually despite increasing concerns in the markets that inflation is on the rise. After having struggled with low inflation for so long, central banks will likely welcome higher inflation if it comes true.”