Global Shares In Free-Fall

The MSCI world shares index fund, which tracks a basket of the top global equities indices, is approaching a very key level. It’s been a turbulent year for the index. Following the heavy losses which marred the start of the year, the index has since rallied more than 35% off the lows, retracing around 70% of the year’s losses. However, in recent weeks, this rally has stalled and the index is now reversing lower once again. If you haven’t heard of the index fund before, it’s a very useful tool for keep an eye on the health of the global. Given that it is essentially an index of all the top indices across the globe, the fund offers an immediate insight into whether global economic sentiment is trending higher or lower and can therefore be a very useful barometer when seeking to position yourself across the markets, aligning with risk flows.

Support From "Fed-Pivot" Fading

The index had been rallying recently on the growing view that the Fed was likely to pivot away from the aggressive tightening we’ve seen over recent months. Taking the view that inflation is moderating and with fears over growth mounting, traders began scaling back Fed rate hike pricing, fuelling a rebound in stock prices. However, in more recent weeks, this view has faded as the Fed itself pushed back against the idea of a slowdown in tightening.

Fed Tightening Back In Focus

The July FOMC minutes saw the Fed reaffirming its commitment to pushing on with tightening. While the bank acknowledged the risks of tightening too much, it cited its main priority as the need to tame excessive inflation. Following the minutes, a group of Fed members were then seen echoing these sentiments, voicing their support for further tightening, including a larger .75% hike in September.

Global Recession Fears Mounting

Additionally, fears of a global recession are taking centre stage once again. Weak Q2 data out of the US and Eurozone have put the focus back on growth recently. This week, the latest round of PMI data out of the US, UK and Eurozone saw many of the readings sinking further into negative territory, highlighting concerns for the outlook as we run down the year. With inflation still elevated, and in places rising, and rates continuing to tighten, many central bankers have warned of a slowdown into year-end.

Technical Views

MSCI

Following the breakout above the bear channel from YTD highs, MSCI has since been grinding higher within a clear bullish channel over the recovery from summer lows. Since stalling into the 518.10 level, however, price is now retracing lower and is fast approaching a key technical area. The 452.09 level holds structural support as well as the retest of the bull channel low and broken bear channel high. This is a key area which, if held, should keep the medium – longer-term view bullish.A break below, however, opens the way for a decline towards 382.89.