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Rising interest rates weakens the outlook for equities

Nick Goold

Dow Jones index

The high volatility in the Dow Jones index continued last week as the market focused on inflation and interest rates. On Tuesday, the US inflation announcement was lower than expected, which saw buyers aggressively push the market higher. US inflation looks to have peaked, so investors are hoping for a reduction in US interest rate increases.

The US Federal Reserve raised interest rates as expected by 0.50%, indicating that high inflation would require more interest rate increases. Wall Street raised expectations for interest rate rises resulting in investors exiting stocks. The Dow Jones ended the week negatively as US retail sales disappointed, and the market became more worried about economic growth in 2023.

The market will enter holiday trading conditions this week, and the major news releases are over for 2022. The Dow Jones chart is now bearish, and we expect further selling this week as the 10-day moving average should act as resistance. This week's best strategy looks to be waiting for a rise in prices to sell.

US 30 daily chart

Resistance：34000, 35000, 35500, 36000, 36500, 37000

Support：32000, 31725, 31000

Nikkei 225 index

The Nikkei followed the US equity markets closely last week as the USDJPY traded sideways. The market will be watching comments following the Bank of Japan meeting this week. However, given the USDJPY has fallen, the market is not expecting any major announcements from the Bank of Japan.

The USDJPY is starting to look bullish, so despite the Dow's bearish outlook, further losses in the Nikkei could be limited. Therefore, range trading is the most likely scenario this week.

Nikkei chart Dec 19

Resistance：27750, 28500, 28750, 29000, 29250

Support：27000, 26500, 26000