Sentiment drags global equities lower

Market sentiment is swinging wildly this week, reflecting a clash of narratives that has left investors struggling to find direction. On one hand, optimism over the end of the U.S. government shutdown has sparked relief rallies, with traders welcoming the removal of a major policy overhang that had dampened confidence and delayed key economic data releases. On the other, renewed concerns about the sustainability of the AI boom and a pushback from Federal Reserve officials against aggressive rate-cut expectations have quickly tempered the mood. The result has been a choppy trading environment where equities, currencies, and commodities are moving more on shifting narratives than on fundamentals. This push-pull dynamic underscores how sentiment has become highly data-dependent. Markets want to believe the soft-landing story, but they remain anxious that the balance between growth and inflation could shift abruptly.

As a result, the Nasdaq 100 has dipped back towards its 50-day SMA, where it has found support in the past. This will be a key test for appetite as the RSI is also nearing the lows seen back in October, at which point buyers re-entered the market, pushing to a new high. A failure to regain some footing around 24,800 could see further downside pressure and a deeper correction.

Nasdaq 100 daily chart

Past performance is not a reliable indicator of future results.

In essence, the current backdrop is one of narrative volatility, where headlines are dictating direction. Investors are vacillating between confidence that monetary policy will soon ease and concern that inflation or overvaluation in key sectors could keep the Fed cautious for longer. Looking ahead, the next moves will hinge on two key drivers: the return of official U.S. macro data, and the tone of upcoming Fed commentary. If upcoming figures confirm that growth and inflation are cooling, risk assets could regain footing and extend their rally. But if the data surprises on the upside or hawkish voices within the Fed grow louder, markets may have to reprice expectations once again, keeping volatility elevated and sentiment fragile.

Meanwhile, European equities are also feeling the pressure with the STOXX 600 pulling away from its fresh highs seen earlier this week. The index is facing a strong correction as it threatens to end the week flat if the selloff continues throughout the day. Earlier in the week, the drivers behind the European rally were centred around a rotation away from tech stocks and hefty valuations in the US, but this hasn’t been enough to shield European equities from the shift in sentiment seen on across the board. Some short-term support could appear around 570 with the RSI still above the 50 line in the meantime.

STOXX 600 daily chart

Past performance is not a reliable indicator of future results