Is this the beginning of a stock market correction? The industry is still limping…

Yesterday's declines in stock indices in the US and Europe were not just a cosmetic "descent" to slightly different levels. Daily negative daily candle on German DAX brought the largest single-session correction since the beginning of this year. The pattern on the chart is negative, but key levels have not been broken yet. A "double top" is visible on the Sp500, just like on the industrial Dow Jones. Is this the beginning of a larger correction in the "overheated market"?

Data better than expected

Nothing special really happened yesterday. For investors in Europe, it was a post-Christmas session, the first in the new month and in the second quarter of this year. In the morning we received the final PMI data from Europe, which turned out to be slightly better than expected, but at the same time weaker than the previous values. For the euro zone, the indicator was revised to 46,1 points. with 45,7. The industry is still limping in Germany, France and Austria. Indicators above 50 points. they are located in southern European economies such as Greece, Spain or Italy. At the time of publication, the market was relatively calm. The German Dax started declining only after 14:30.

A little earlier, at 14:00 p.m., data on the German language came to light CPI inflation, which decreased to 2,2 percent. from 2,5 percent on a year-to-year basis. Which was as expected. The HICP dropped slightly more sharply to 2,3%. with 2,7 percent y/y in the previous month. Inflation expectations in Europe have also improved among consumers in the short term. For the next 12 months they amount to 3,1%. Previously it was 3,3 percent. This is the lowest level since the outbreak of the war in Ukraine (February 2022).

The strength of the American economy

In the US data, attention was focused on the JOLTS survey, which showed the number of job vacancies and employee turnover. The result of 8,76 million was close to the consensus. The previous result remained revised down from 8,86 million to 8,75 million. Industrial orders also increased in the US, increasing by 1,4%. m/m. Orders for goods excluding means of transport also increased by 0,3%. m/m (expected 0,5%) and for durable goods by 1,3%. m/m (forecast 1,4%).

The data shows the strength of the American economy. Wall Street's interpretation was that the economy was doing well, so the Fed might not be in a hurry to cut rates. Consequently, the Dow Jones and Nasdaq Composite they lost 1 percent and SP500 0,7 percent. If the next data (ADP, ISM for services, NFP) turn out to be strong, yesterday's declines may be the beginning of a larger correction on the stock exchanges.

Source: Łukasz Zembik, OANDA TMS Brokers