By IFCMarkets

Fed’s easing of monetary policy bullish for SP500

Recent US economic data were mixed: durable goods orders declined over month in January as did the Institute for Supply Management’s (ISM) manufacturing index in February, while pending home sales rose over year in January as did personal income over month. Durable goods orders declined 0.2% over month, but the reading without volatile transportation component rose to 0.8% from 0.1% growth. The ISM PMI declined to 50.1 from 50.9. At the same time construction spending rose in January to 1.8% from 0.2% in December. The decline in goods trade deficit in January was another positive development: the deficit narrowed to $-65.5 billion from $68.67 billion in December. Personal income rose 0.6% on month from 0.1% , and pending home sales rose 5.7% over month from 4.1% in December. The slowing of manufacturing sector expansion was due to supply bottlenecks linked to the coronavirus infection. The spread of infection caused disruption in factory operation in China, which resulted in supply shortages for companies all over the world. This caused the selloff in stock markets all over the world. However, the Federal Reserve surprised investors with a half percentage-point cut in interest rates. Fed’s extraordinary surprise rate cut since 2008 followed a pledge on Tuesday by Group of Seven finance ministers and central bank governors to support their economies by appropriate actions. It came two weeks ahead of Fed’s scheduled policy meeting, where traders had fully priced in a half percentage-point cut. Easier monetary policy is bullish for stock market. At the same time, development of worse scenarios of coronovirus global infection outbreak is a downside risk for stock markets.

Summary of technical analysis

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