European Open: Flash PMI and ‘extraordinary NATO meeting’ in focus

Asian Indices:

• Australia's ASX 200 index rose by 9.2 points (0.12%) and currently trades at 7,387.10
• Japan's Nikkei 225 index has fallen by -39.34 points (-0.14%) and currently trades at 28,000.82
• Hong Kong's Hang Seng index has fallen by -20.91 points (-0.09%) and currently trades at 22,133.17
• China's A50 Index has fallen by -89.94 points (-0.65%) and currently trades at 13,753.56

UK and Europe:

• UK's FTSE 100 futures are currently up 6 points (0.08%), the cash market is currently estimated to open at 7,466.63
• Euro STOXX 50 futures are currently up 4 points (0.11%), the cash market is currently estimated to open at 3,873.22
• Germany's DAX futures are currently up 8 points (0.06%), the cash market is currently estimated to open at 14,291.65

US Futures:

• DJI futures are currently up 76 points (0.22%)
• S&P 500 futures are currently up 72.25 points (0.5%)
• Nasdaq 100 futures are currently up 14.75 points (0.33%)

Market mixed overnight ahead of summit

There is a lot of headline risk today with the self-titled ‘Extraordinary NATO Summit’, where ‘NATO members discuss the next steps to protect and defend all Allies’. The NATO website will stream all public components of the meeting and journalist will be present to provide potentially market-moving headlines throughout. It will be interesting to see what comes of it, as the EU is effectively over a barrel (and much to Putin’s amusement). Trying to help Ukraine without being seen as ‘interfering’, whilst discussing yet more sanctions on Russia – who sit on the largest collections of nukes in the world - is not an easy task. And that’s before they even discuss banning the imports of Russian oil, which is most likely the line in the sand for whether Putin throws his nuclear toys out of the pram.

Oil and metals remain key markets to watch around NATO summit

Clearly, the markets to watch are the usual suspects. It could be make or break for oil’s latest rally, with a ban likely to send it higher due to supply constraints. Gold is likely to remain supported regardless of the meeting’s outcome as it remains the ideal hedge surrounding Ukraine. Yet base metals (and in particular palladium) could rally higher with oil if a ban is implemented, being Russia’s key export. Equity markets appear a bit detached from this theme, although European bourses could feel the heat if NATO upset Putin enough. But we have outlined a case for pullbacks on US equities and, by extension, this also relates to Europe as they have seemingly noticed rising yields.

FTSE’s rally stalls at 7500

Rising yields are finally taking their toll on equity sentiment and several benchmarks printer reversal candles at our around their 200-day eMA. The FTSE 100 printed a shooting star candle which warns of exhaustion of its trend. The fact it failed to hold above 7500 and the weekly R1 pivot makes the 1-bar reversal candle more significant. Ultimately, we suspect a pullback is due and 7400 is the initial target due to its round-number status, with the 50-day eMA (7365) and 7300/18 support zone next in line should the retracement be deep.

FTSE 350: Market Internals

FTSE 350: 4186.36 (-0.22%) 23 March 2022

• 111 (31.62%) stocks advanced and 228 (64.96%) declined
• 6 stocks rose to a new 52-week high, 0 fell to new lows
• 35.04% of stocks closed above their 200-day average
• 43.87% of stocks closed above their 50-day average
• 14.81% of stocks closed above their 20-day average

Outperformers:

• + 12.53% - TP ICAP Group PLC (TCAPI.L)
• + 5.24% - Harbour Energy PLC (HBR.L)
• + 5.13% - PureTech Health PLC (PRTC.L)

Underperformers:

• -4.46% - Reckitt Benckiser Group PLC (RKT.L)
• -4.40% - Royal Mail PLC (RMG.L)
• -4.32% - Safestore Holdings PLC (SAFE.L)

Gold still seems like a (relatively) safe bet around NATO Summit

Gold has so far resisted any temptation to break above 1950, a level which has capped gains this past week. But with so much headline risk surrounding the NATO summit it’s hard to see how it could face heavy selling pressure, regardless of the outcome. Let’s say that EU officials do something quite remarkable, such as unanimously agreeing on banning Russian oil imports. Gold would likely attract safe-haven flows on the grounds that it increases the odds that Putin will lash out at the West. Yet if EU officials don’t agree (which seems likely), Putin effectively has Europe in his pocket, war rages on – and that’s just not a good enough reason to be bearish gold. Either way, a break of 1950 seems viable which leaves it more a question over when and how high it breaks in the current environment. A daily close below 1900 would see us ditch that view.

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