Daily Market Analysis - FRIDAY JULY 21, 2023Tech Titans' Earnings Fall Short as Dow Soars: Anticipation Builds for Fed's Rate Hike and Key Economic Data
Key News:
UK - Retail Sales (MoM) (Jun)
Canada - Retail Sales (MoM) (May)
Thursday was a day of divergent fortunes in the market's theater. The mighty S&P 500 and Nasdaq, usually riding high, stumbled and fell, their spirits dampened by the less-than-stellar quarterly performances of two iconic players, Tesla and Netflix. The stage seemed shrouded in uncertainty as investors watched with bated breath, wondering what lies ahead for these titans.
NASDAQ indices daily chart
S&P500 indices daily chart
Tesla's once-soaring shares took a drastic nosedive, plunging by a staggering 9.20% in a single day—a remarkable tumble not witnessed since April 20. The catalyst for this sharp decline came as the electric-vehicle giant reported a distressing drop in its second-quarter gross margins, hitting a four-year low. Such grim tidings sent shockwaves through the market, leaving investors on edge and questioning the road ahead for the iconic company.
Adding fuel to the fire of uncertainty, CEO Elon Musk dropped subtle hints about potential price cuts. These mere suggestions reverberated through the minds of shareholders like an ominous echo, further fueling the already prevailing negative sentiment surrounding the stock.
In the realm of Tesla's fortunes, this tumultuous day served as a stark reminder of the company's vulnerability to market forces. The road ahead seems uncertain, and the once-invincible aura surrounding the electric-vehicle pioneer has shown signs of faltering. The stage is set for a gripping saga of financial maneuvers and strategic decisions, and only time will reveal how this drama unfolds.
Tesla stock daily chart
In the world of streaming giants, Netflix faced a significant setback as its stock slumped by a considerable 8.24%, experiencing its most substantial daily percentage drop since December 2022. The culprit behind this downturn was the company's disappointing quarterly revenue, which fell short of investors' estimates. The news sent shockwaves through the market, causing a wave of negative reactions from shareholders and casting a shadow of doubt over the future prospects of the streaming video powerhouse.
Amidst the turmoil in the streaming industry, the dollar index showcased its resilience, remaining strong and resolute. Once again, it boldly approached the psychological barrier of 100, a level that had previously proven elusive during a previous attempt on Wednesday. The index's tenacity and determination have captured the attention of market participants, eager to decipher its implications for the global economic landscape.
As these parallel narratives unfold in the realm of finance, uncertainty reigns supreme. Netflix grapples with challenges in an ever-competitive streaming market, while the dollar index stands tall, an indicator of broader economic forces at play. Investors and observers brace themselves for what lies ahead, as the stage is set for a thrilling and unpredictable act in the grand theater of global markets.
US Dollar Currency Index daily chart
In the ever-shifting landscape of global markets, the dollar index faced a challenging phase, enduring a 2.9% decline over the past fortnight. This decline was triggered, in part, by cooler-than-expected US inflation data and speculations about the Federal Reserve potentially concluding its tightening cycle sooner than previously anticipated. However, the index began to regain its lost momentum, showing signs of recovery.
Wednesday proved to be a pivotal day, as the index emerged from a period of narrow consolidation. During this phase, a notable triple-Doji pattern manifested, revealing a sense of indecision lingering in the market. This pattern underscored the cautious sentiment among investors, who keenly observed economic indicators and the possibility of shifts in the Federal Reserve's monetary policy—two critical factors that could significantly sway the direction of the dollar index.
Meanwhile, the gold market danced to a different tune on Friday, with prices witnessing an upswing. The yellow metal was on track for a positive week, primarily driven by growing expectations that the Federal Reserve might be nearing the conclusion of its rate hike cycle. Such expectations breathed life into gold's allure as a safe-haven asset, attracting investors seeking stability amidst the fluidity of the financial landscape.
As financial actors around the world analyze the rhythm of economic indicators and central bank policies, the stage is set for a captivating performance in the intricate theater of currencies and commodities. The plot thickens, and the audience of investors eagerly awaits the next act, where every move and decision can shape the course of these intricate dramas.
XAU/USD daily chart
The gold market has been on an upward trajectory, marking the third consecutive week of gains for bullion prices. Notably, they have found stability in the high $1,900s range, largely due to the prevailing perception that there will be fewer US interest rate hikes for the remainder of the year.
Investors in the gold market are carefully attuned to the future path of interest rates, a crucial aspect determined by the Federal Reserve's decisions, and closely monitor fluctuations in the US dollar's value. These two factors hold immense sway over gold prices, and any indications or clues from the Federal Reserve regarding its monetary policy stance are watched with great interest.
During the past five trading days, the New Zealand dollar has faced significant headwinds, emerging as the weakest performer among the G10 currencies. Its downward trajectory against the US dollar continued yesterday, further fueling the greenback's broad rebound. The release of New Zealand inflation data hinted that the Reserve Bank of New Zealand (RBNZ) might maintain interest rates and might have already completed its tightening cycle. This development has strengthened the US dollar against the New Zealand dollar and has influenced the broader sentiment in currency markets.
AUD/USD daily chart
The upcoming week looms large with significant events, particularly in the technology sector. Major tech companies, including Microsoft, are gearing up to release their reports. These industry giants have witnessed remarkable stock growth this year, driven by optimistic expectations surrounding artificial intelligence and its potential for explosive expansion. Analysts eagerly await further details on these companies' AI plans and how they will impact earnings, as this information can sway market sentiments.
The second quarter reporting season for banks will come to a close, with regional players like Comerica and Regions providing their updates. The banking sector has enjoyed the benefits of rising interest rates, enabling them to generate more revenue from loans. However, larger banks with Wall Street-focused businesses faced challenges due to a decline in deal-making activities, which affected their overall revenue. Investors will be closely monitoring these reports to gauge the sector's performance and outlook.
The Federal Reserve's decisions remain under the spotlight, as the central bank is scheduled to convene to determine interest rates once again. The general expectation is that rates will be raised by a quarter of a percentage point. All eyes will be on Chair Jerome Powell's press conference on Wednesday afternoon, as investors seek additional hints about the Fed's future course and potential impacts on the financial landscape.
Furthermore, key economic reports will be unveiled following the interest rate decision. These include the second-quarter gross domestic product (GDP) reading and the latest update on the personal consumption expenditures index—an essential measure of inflation. Investors and policymakers will closely scrutinize these reports as they hold vital clues about the health of the economy and its trajectory.
As the curtain rises on the upcoming week, the stage is set for a flurry of events that will shape the narrative of global markets. Each piece of information unveiled in this dynamic performance will have far-reaching implications, captivating investors and stakeholders alike in the ever-evolving theater of finance.
