Are Stocks Headed For a Correction?

The last two weeks were highly positive for US equities and other global indices as the SP500 index rallied 10% and erased nearly all of this year's losses. 

However, judging from the soaring yields and hawkish Federal Reserve (Fed) expectations, the rally might be over soon. 

Morgan Stanley Remains Bearish

Morgan Stanley has recently warned that recent gains in equities won't last, and investors should be more defensive with their portfolios. 

Chief US Equity Strategist Michael Wilson said "the bear market rally is over," and the bank suggests putting money into bonds instead of stocks in the near term. He indicated growth would be the main focus heading into the following months, and that's why Morgan Stanley is "doubling down" on a defensive bias. 

Wilson thinks the US economy is on track for a significant slowdown. He pointed to a drop in demand with the end of fiscal stimulus money, high prices caused by the conflict in Ukraine, and the post-pandemic inventory buildup. He further explained that all that would create a "less-forgiving" macroeconomic environment, which will squeeze corporate profits. 

Rally Wilson added the gains for stocks in the second half of March, which produced a winning month for the markets, was predictable from a technical standpoint, and doesn't have staying power. Morgan Stanley has been the most bearish big bank, predicting the SP500 index will be at 4,400 USD by the end of the year. However, compared with Monday's price of 4,570 USD, that would be only a 3.5% decline. 

However, the market now trades above its 200-day moving average, currently near 4,500 USD. So as long as the index stays above it, the outlook seems bullish. 

The Fed is Hawkish 

Investors now anticipate the Fed will increase fed funds by 50 bps at its next meeting this month. Another 50 bps increase could come in June as inflation shows no signs of easing. Inflation is at levels that have preceded recessions throughout the last 50 years.

Additionally, the yield curve had inverted. That could be the single most accurate predictor of a recession. It has accurately predicted every recession since the early 70s, including the 2020 recession. And it's now forecasting a recession soon.

The Fed has started raising rates into this mess. It all points to a sharper correction in equities as valuations are still stretched, and the market ignores all the negative factors. Therefore, investors might consider reducing their exposure to riskier sectors, such as tech or cyclicals, and start buying some defensives, such as utilities or groceries.

3 Reasons Why Copy Trading Is So Popular

It was strictly against the rules in school. But copying from someone more knowledgeable than you when you’re trading online isn’t only allowed, it’s encouraged.  

With a flurry of available copy trading apps, and more traders joining, it’s easy to see that copy trading has become more and more popular over the past few years. 

But how? For those who are unfamiliar with copy trading, here are a few reasons why copy trading is catching on. 

Practice smarter, not harder

First-time skydivers connect to a more experienced pro when they jump out of an aeroplane for the first time. New traders choose to copy trade for a very similar reason. It takes a lot of the risk out of the experience. It’s also an easy way to learn the ropes. All you have to do is follow a more experienced trader and copy their moves. By doing that you can potentially profit from their strategies, while also avoiding costly amateur blunders.

Learn quickly and more easily

To become a profitable trader you need to understand the markets, and how they move. That can take time, and not every trader can devote several hours every day to learning. By copy trading, traders who have more experience make trading decisions for you, until you’re able to develop your own strategies. The technology is smart, slick and user-friendly, making copy trading a practical way of quickly learning how to trade. 

Diversify your portfolio and grow your returns

Traders use copy trading to venture out into new markets by following and copying from traders with more experience in those markets. By broadening their trading horizons even more experienced traders can learn by copy trading. It’s a great way to diversify a trading portfolio without taking on a lot of risk. And as traders become more seasoned, they benefit through copy trading by sharing their trading successful strategies and growing their network.  

How to Start Copy Trading 

To start copy trading, you need to create an account with your chosen broker and download their copy trading app. 

Once you’re logged in to the app, you can browse through the trader’s performance data and strategies, and choose one who has a good track record of consistent profits 

Once you’ve chosen your trader, you can set the amount you’re willing to invest. It's always a better idea to start with a small portion of your income and increase it as you become a more savvy trader.

Lastly, observe! Analyze what other traders are buying and selling. Both novice and seasoned traders can benefit by watching what other traders are doing. 

The SP500 Tries to Remain Bullish

The SP500 equity indices

The benchmark of all equity indices – the SP500 index – traded above 4,500 USD on Monday evening, trying to defend its short-term uptrend.

Rising Yields Still Not Causing Concerns 

Investors continue to ignore rising yields, along with the Federal Reserve's (Fed) aggressiveness in tightening monetary policy. 

US yields continued to increase sharply on Monday, pushing the 2-year yield 6% up, hitting the 2.4% threshold and the highest level since June 2019. Traders are now pricing in a 50 bps rate hike at the Fed's next meeting, while another 50 bps rate increase could follow afterward. Nevertheless, equities have performed well in this environment.

In other news, Russian Foreign Minister Sergey Lavrov said on Monday, "any meeting between Putin and Zelenskyy to exchange views now would be counter-productive."

 Meanwhile, Ukraine's President Volodymyr Zelenskyy has said that Ukraine is to insist on sovereignty and territorial integrity at the next round of talks with Russia in Turkey.

However, it looks like global markets have stopped caring about Ukraine as, for now, it remains a local conflict in a not-so economically important country. So far, the only outcome has been even more inflation, driving bond yields sharply higher. 

Daily Chart Appears Optimistic

"Whilst volume remains light to suggest this is still a rally within a broader range, we continue to see scope for a move above here to test the February highs at 4590/95, but we would expect a fresh cap here. Should strength directly extend though, we would look for a move to next resistance at the 78.6% retracement and price resistance at 4663/68." Analysts at Credit Suisse said on Monday.

Still, as long as the index trades above its 200-day average near 4,490 USD, the medium-term does indeed look bullish.

On the other hand, failure to stay above the mentioned average could lead to a more significant correction, targeting 4,400 USD. The next major support could be at 4,275 USD, followed by the current cycle lows at 4,145 USD.

USDJPY at 6-year Highs AS BOJ Governor Comments on Consumer Inflation

The USD continues to rally against the yen, jumping above the psychological level of 120 for the first time since February 2016.

The BOJ is Dovish

In other news, Bank of Japan (BOJ) Governor Haruhiko Kuroda commented on consumer inflation in his appearance on Tuesday.

He thinks that inflation will likely rise, weighing on the economy long term. However, it’s still premature to speak about an exit from the BOJ's easy policy, including what to do with its ETF buying. The BOJ will continue buying ETFs as needed as part of its monetary easing program. The JPY fell sharply after his comments.

The Fed is Hawkish

On the other hand, the Federal Reserve (Fed) will likely hike interest rates 6 to 7 times this year, and Quantitative Easing (QE) is about to end. Hawkish expectations are pushing US yields sharply higher – bringing the 2-year yields to 2.2% and the 10-year yields to new cycle highs at 2.35%. The USDJPY is usually tightly correlated to US yields, so in reaction the pair rose to fresh six-year highs above 120.

In his Monday's speech, Fed Chair Jerome Powell sounded the alarm on inflation, saying it's 'much too high' and opening the door to more aggressive rate hikes. "We will take the necessary steps to ensure a return to price stability," he said. "In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well."

Big Banks Remain Bullish

Additionally, Economists at Bank of America Global Research have revised USD/JPY forecasts up. They expect the pair to reach 123 in the third quarter amid an excessive supply of yen into the summer.

"We raise our above-consensus USD/JPY forecast – 123 by 3Q22 and 120 at year-end (vs. 118 previous, 116 consensus). We except excess supply of JPY into summer: (1) energy imports, (2) university funds' investment, (3) policy divergence," they said this week.

According to the ING report, the Fed's tough love on inflation could send the pair to 125.

"A sharply deteriorating trade position on the back of fossil fuel prices and a still dovish central bank leaves the door wide open for USD/JPY to trade up to 125 over coming weeks."

The next target for bulls could be at 121.50, February 2016 highs, followed by the 123.40 resistance. As long as the USD trades above 120, the immediate outlook seems bullish.

FBS Reveals Always By Your Side Brand Campaign

International online Forex broker, FBS, together with Leicester City Football Club announced a brand campaign that aims to inspire people to reach new goals and new heights. 

FBS Brand Campaign

Inspire With FBS & LCFC

This brand campaign, Always By Your Side, was created to bring the idea of accessible trading. The campaign aims to prove that even those without strong knowledge of trading and finance can enter the market with the help and support of broker FBS

A top prospect player, Wesley Fofana and two leading players of the team Jamie Vardy and James Maddison are featured in the video campaign. This video is now available on both FBS and LCFC’s official websites and social media. 

This campaign is not the first cooperation of these two experienced and awarded teams. In fact, FBS and LCFC signed a partnership agreement in May 2021 and already had six joint contests with generous prizes. Such collaborations are very welcomed in both industries as they aim to engage and inspire people all over the world to enjoy their lives and fulfil their dreams.

FBS is a forex broker with a big name and decade of experience and over 60 international awards. Over 23 000 000 traders and more than 500 000 partners from around the world have chosen the company. FBS is also the Official Principal Partner of Leicester City Football Club and Official Trading Partner of FC Barcelona.

BDSwiss Appoints Nicolas Shamtanis as CEO

BDSwiss Appoints Nicolas Shamtanis as CEO

The leading Forex and CFD investment services institution, BDSwiss, has appointed Nicolas Shamtanis as its CEO. With joining BDSwiss team in September 2021, Nicolas brought along with him 15 years of experience in the global financial sector and forex industry specifically. 

Nicolas career in the forex company easyMarkets started in 2007, where he worked in different senior positions. Starting 2019 Shamtanis worked as a Chief Sales Officer in Kuala Lumpur, Malaysia, gaining significant experience in Exness, and later was relocated to Limassol Cyprus for a position of Head of B2B Sales.

Nicolas’ role at BDSwiss will be pivotal in elevating the brand’s global presence and expansion plans.

Commenting on his recent appointment, Nicolas said: “I am delighted to take on the role of CEO at such an exciting but also challenging time, as BDSwiss enters a new phase of growth, with plans to extend our range of services and assets to a wider group of clients around the world. My focus lies on offering an exceptional client experience and journey in a regulated and transparent environment, as we push our growth trajectory forward.”

BDSwiss is a financial group of companies, offering Forex and CFD investment services to more than 1.5 million clients worldwide. The brokerage complies with a strict regulatory framework and operates its services on a global scale under a number of different entities.

Oil Hits 125 USD, What’s Next?

On Monday, the West Texas Intermediary (WTI) benchmark rose to 125 USD, the highest level since 2008. At the same time, the EU benchmark Brent, jumped toward 140 USD.

Oil prices spiked sharply following news that the US was talking with European allies about a potential ban on imports from Russia.

Sanctioning Russian oil would be the most significant escalation in the West's response to Moscow's invasion of Ukraine, and it poses serious negative consequences for the global economy. While Russia's economy will be hurt the most, Europe will likely fall into a severe recession, and US economic growth will also be hit, with consumers getting the most of it. Moreover, the magnitude of the downturn could be even worse than in 2008, as inflation will likely rise toward 20%. 

In 2008, demand destruction occurred when prices approached 140 USD. Adjusting for inflation, prices need to go above 200 USD to have a similar effect on consumption. However, the current spike in prices is not a demand-driven shock but a supply-driven one, and there's no ceiling in sight.

Russia currently exports approximately 4.5 million barrels of crude oil. If exports were cut in half, prices would likely sky rocket in the short to medium-term, even if the US and other nations release oil from their strategic reserves. However, if the crisis gets worse and Europe imposes sanctions on Russian oil with no response from OPEC members, we can see prices jumping toward 200 USD.

Fortunately, so far, Germany has said no to these sanctions. On the other hand, the overall situation might be improving in Ukraine as the Russian Federation and Ukraine foreign ministers had agreed to meet in Turkey, with Sergey Lavrov and Dmitro Kuleba set to meet later in the week on the sidelines of the Antalya Diplomacy Forum. 

Turkish foreign minister Mevlut Cavusoglu said on Twitter that he hoped the step would lead to "peace and stability." The meeting would mark the highest-level contact between the two sides since 24 February, when Moscow started the special military operation in Ukraine.

Any real de-escalation could cause some profit-taking from the current rally. However, as long as oil remains above 100 USD, the bullish outlook seems intact, targeting the 150 USD psychological level.

Since the military conflict started, oil has gone vertical and is up 35% in more than a week. If this trend continues, the world will face inflation it has never seen before. 

Volatility Seen on Stocks, Following Ukraine-Russia and Fed Headlines

Volatility Seen on Stocks

It looks like volatility is set to remain in the equity markets as traders (and algos) are constantly searching for news regarding geopolitical tensions in Eastern Europe.

Tensions Remain but Might Be Improving

During their Sunday phone call, Ukraine's President Volodymyr Zelensky asked US Preident Joe Biden to visit Kyiv in person amid continuing White House claims that a Russian invasion is set to happen "any day" now.

Saying that major Ukrainian cities are "under safe protection," Zelensky suggested that a visit of the US president in person would stop the spread of panic and prevent escalation. 

"I am convinced that your visit to Kyiv in the coming days... would be a powerful signal and help stabilize the situation," Zelensky was quoted as saying in the call

Russian foreign minister Sergey Lavrov addressed the press alongside Russian President Vladimir Putin on Monday, easing investor nerves of an "imminent" invasion.

Initially, Lavrov said NATO is trying to dictate rules in Europe, and Russia is not satisfied with the US view on the alliance's expansion. He then added that Russia's proposals should be considered as a whole.

However, shortly after, Lavrov said he still supports continuing diplomatic talks with the west regarding whether "there was a chance for agreement" on critical issues. He can see a way to move forward with talks. To that proposal, Putin responded, "all right," sending all risk assets sharply higher.

Lastly, Ukraine's President Zelensky, in his Monday evening address to the nation, emphasized that the current crisis with Russia would be solved through negotiations. "Ukraine seeks peace and wants to deal with all issues only through negotiations."

Should the situation de-escalate, it might be a strong bullish signal for US equities.

Fed to Increase Rates in March

On the other hand, a de-escalation could confirm the current hawkish path of the Federal Reserve (Fed), with six rate hikes currently priced in. On Monday, St. Louis Fed's Jim Bullard reiterated his hawkish stance, saying the Fed must reassure people it will defend its inflation target (in the 2.0 – 2.5% range). Additionally, he said he is worried that the central bank is not moving fast enough. Therefore, he still supports a 50 bps rate hike in March.

Technically speaking, the next support for the SP500 index should be at previous lows in the 4,250/70 USD area. We might see a medium-term correction toward 4,000 USD if that level is broken down. 

Alternatively, the resistance is now seen at the 200-day moving average (the green line) near 4,465 USD. Jumping above would likely improve the short-term outlook to bullish.

ECB Surprises Markets, Changes Guidance to Hawkish

ECB Surprises Markets, Changes Guidance to Hawkish

The euro has rallied strongly over the previous days as traders bought the shared currency following last week’s European Central Bank (ECB) monetary policy decision and press conference.

At its Thursday meeting, the ECB sounded unexpectedly hawkish, saying it might recalibrate monetary policy at its next meeting in March.

According to the report, the Governing Council agreed that it’s sensible not to exclude a rate hike this year and that an end of bond-buying under the APP in the third quarter is possible.

Additionally, both Bloomberg and Reuters reported that ECB policymakers “see policy change at March meeting if inflation doesn’t ease,” adding that a “sizable minority” of ECB policymakers wanted to change policy at Thursday’s meeting, and also noted that ECB policymakers see a faster tapering of APP purchases as the “first port of call to fight high inflation.”

The euro strengthened massively following the ECB decision, sending the EURUSD pair to one-month highs near 1.1480. At the same time, yields in the eurozone soared, while the rate market now expects the ECB to hike rates two times by September 2022.

The German 2-year yield had a nine-sigma event, causing it to spike steeply to multi year highs, reaching 0.2% for the first time since 2015. It looks like monetary policy in the euro zone could start to tighten gradually. 

The next resistance for the euro now stands at previous lows at 1.1520. If the shared currency rises above that level, the medium-term outlook could change to bullish, targeting the 200-day moving average (green line) near 1.1670.

Alternatively, support could be found at previous highs of 1.1380 and corrections to this level are expected to be bought.