✅ Daily Market Analysis - WEDNESDAY JULY 26, 2023Key News:
USA - Building Permits
USA - New Home Sales (Jun)
USA - Crude Oil Inventories
USA - FOMC Statement
USA - Fed Interest Rate Decision
USA - FOMC Press Conference
Cautious Optimism in European Markets as FTSE 100 Reaches Two-Month High
European markets have started the week with a cautiously optimistic tone, fueled by hopes of additional stimulus measures from Chinese authorities in response to recent poor economic data. The sentiment has had a positive impact on the FTSE 100, which experienced a significant boost, reaching a two-month high on the previous day.
Investors in the region are closely monitoring developments in China, as concerns over its economic slowdown have weighed on global markets. The prospect of further stimulus measures from Chinese authorities is seen as a potential boost for both the Chinese economy and international markets, including Europe.
In response to the recent challenges in the Chinese economy, there are expectations that authorities may introduce measures to support growth and stability. Such actions could include monetary easing, fiscal support, or targeted measures to address specific economic sectors.
The positive market sentiment in Europe, particularly in the UK represented by the FTSE 100, is a reflection of investors' hopes for a potential economic rebound in China. As one of the world's major economies, any improvement in China's economic outlook could have significant ripple effects on global trade and investment.
However, market participants remain cautious as uncertainties persist, and the situation in China remains fluid. The impact of any stimulus measures on the broader global economy is yet to be seen, and geopolitical factors continue to influence market sentiment.
As the week progresses, investors will closely watch for any official announcements from Chinese authorities regarding stimulus measures and assess their potential implications for the European and global markets. In the meantime, cautious optimism prevails, with the FTSE 100's recent performance reflecting the market's hopeful outlook for economic recovery.
FTSE 100 daily chart
Optimism Grows as Short-Term Yields Retreat, Earnings Reports Impress
The improved sentiment in the markets has been further bolstered by a retreat in short-term yields, as investors believe that central banks may not need to implement aggressive rate hikes as previously anticipated just a few weeks ago. This development has eased concerns and contributed to a more positive outlook in the financial landscape.
Both German and UK 2-year yields have experienced a sharp decline from their earlier highs this month, largely attributed to the indication that inflation is slowing down more rapidly than initially projected. This trend has provided reassurance to investors, alleviating some of the fears of abrupt rate hikes that could potentially hamper economic recovery.
In the United States, stocks are witnessing moderate gains on Tuesday, driven by several factors contributing to a favorable market environment. Firstly, the release of a better-than-expected Consumer Confidence survey has boosted investor confidence in the strength of the US economy. The survey's positive results signal that consumers are optimistic about economic prospects, which bodes well for future spending and business activity.
Additionally, a series of earnings reports has surpassed expectations, further uplifting market sentiment. Strong corporate performance is a key driver of market growth, and companies' ability to outperform forecasts indicates robust economic conditions and the potential for continued expansion.
The combination of upbeat economic data and encouraging earnings reports has reinforced the notion that the global recovery is on track, and the worst impacts of the pandemic are subsiding. These positive developments have contributed to the improved sentiment in the markets and the appetite for risk among investors.
As the financial landscape continues to evolve, market participants will closely monitor central bank actions and economic indicators for further clues on the trajectory of interest rates and inflation. In the meantime, the current positive market sentiment is supporting moderate gains in US stocks and providing a sense of optimism for investors in the midst of an ever-changing economic landscape.
NASDAQ indices daily chart
SPX indices daily chart
DJI indices daily chart
Wall Street Rally: Factors Fueling Optimism in the US Market
The current Wall Street rally has been fueled by a convergence of positive factors, creating a favorable environment for investors and driving market sentiment. Several key elements are contributing to this optimistic outlook.
Strong US Consumer Confidence: One of the driving forces behind the rally is the strong US consumer confidence. The recent surge in consumer confidence has instilled optimism in the economy's resilience and growth prospects. This positive sentiment is indicative of consumers' confidence in their financial well-being and their willingness to spend, which can have a significant impact on economic activity and corporate performance.
Growing Belief in an Economic 'Soft Landing': Investors are increasingly becoming more confident in the notion of an economic 'soft landing,' wherein the economy transitions from a period of rapid growth to a more sustainable and stable pace. This reassurance has been underpinned by various economic indicators and data, suggesting that the economy is gradually moderating, rather than facing a sharp contraction.
Optimism Surrounding Artificial Intelligence Initiatives: The growing focus on artificial intelligence (AI) initiatives is also contributing to the positive sentiment on Wall Street. Investors are recognizing the potential of AI technologies to drive innovation, efficiency, and productivity in various industries, creating exciting opportunities for companies at the forefront of AI adoption.
Better-than-Anticipated Earnings Results: The ongoing earnings season has seen better-than-anticipated results from major tech companies, further boosting investor confidence. These positive earnings reports signal strong corporate performance and underscore the robustness of the US economy.
Busy Earnings Season: This week marks the start of the two busiest weeks of the earnings season, with a significant number of US companies reporting their earnings. Investors are closely monitoring these reports for insights into corporate performance and future prospects. The initial reactions to earnings releases from companies like Microsoft and Alphabet have been positive, adding to the overall optimism in the market.
Resilient US Economy and Federal Reserve's Monetary Policy: The overall resilience of the US economy and indications that the Federal Reserve is nearing the end of its rate-hiking cycle have contributed to the positive sentiment. A stable monetary policy outlook provides confidence to investors, as it suggests that the central bank is striking the right balance between managing inflation and supporting economic growth.
In conclusion, the current Wall Street rally is the result of multiple factors aligning to create an environment of optimism and confidence. Strong consumer confidence, expectations of an economic 'soft landing,' enthusiasm for AI initiatives, and positive earnings results are all contributing to the positive sentiment. As the earnings season unfolds, investors will continue to closely monitor corporate performance and central bank actions, which will further shape market dynamics in the weeks to come.
GOOGL stock daily chart
MSFT stock daily chart
Fed's 25bps Rate Hike Likely to Be the Last in 2023 Amid Inflation Concerns
The much-anticipated 25 basis points rate hike by the Federal Reserve today is expected to mark the final increase for the year, despite any potential arguments by Fed policymakers for additional hikes. Last month's pause in rate increases seems to set the tone for a more cautious approach towards monetary tightening.
Recent trends surrounding US inflation, particularly the likelihood of the Producer Price Index (PPI) turning negative in July, may pose challenges for the Fed's case for further rate hikes. Inflation dynamics have been a key concern, and the prospect of PPI potentially going negative adds to the complexities of justifying additional tightening measures.
Federal Reserve Chairman Jerome Powell may voice support for more rate hikes, but prevailing market sentiment seems to favor a prolonged period of higher rates. The focus will be on the Fed's projections regarding when it expects to reach its 2% inflation target. Despite the headline Consumer Price Index (CPI) currently sitting at 3%, core prices remain elevated, capturing attention from both the Fed and the market.
Investors and analysts will closely monitor the Fed's communication on its outlook for inflation and its strategy to achieve its price stability mandate. Any indication that the Fed is reassessing its approach to monetary policy amid inflation concerns could impact market sentiment and influence future rate expectations.
As the Fed delivers its decision today, the financial community will scrutinize not only the rate hike itself but also the nuances in the accompanying statements and remarks made by Chairman Powell during the press conference. Clarity on the Fed's stance and commitment to addressing inflation will be crucial for shaping market expectations and guiding investor decisions in the coming months.
US inflation rate
Challenges Ahead for the Fed as Headline CPI Declines, Causing Uncertainty in Gold Prices
As headline Consumer Price Index (CPI) continues its downward trend, the Federal Reserve may encounter difficulties in convincing the markets to support further rate hikes under the current economic conditions. The declining CPI adds to the uncertainties surrounding the central bank's future monetary policy decisions.
Gold prices have been experiencing fluctuations this week as investors remain cautious ahead of the Federal Reserve's meeting later in the day. The widely anticipated 25 basis points rate hike during the meeting has already been factored into the market expectations. However, the focus lies on any indications or signals regarding the central bank's stance on future rate hikes for the remainder of the year.
The precious metal's prices have remained within a narrow range amid the uncertainty surrounding the Fed meeting. Investors are closely monitoring any clues from the Federal Reserve regarding their outlook on inflation and potential further tightening measures. Market participants are keen to understand the central bank's assessment of economic conditions and whether additional rate hikes are warranted amid the evolving inflation dynamics.
As the Federal Reserve makes its announcement, the markets will be carefully analyzing the statements and remarks by Fed officials, especially Chairman Jerome Powell, during the press conference. Any hints of a shift in the Fed's approach to monetary policy could trigger volatility in gold prices and influence investor sentiment.
In this climate of uncertainty, gold prices are likely to react to the nuances of the Fed's communication, as traders and investors gauge the central bank's intentions and how it plans to address inflationary pressures. The upcoming meeting will provide critical insights into the central bank's strategy, and any surprises or shifts in their messaging could have significant implications for gold prices and the broader financial markets.
XAU/USD daily chart
Gold's Recovery Stalls Amidst Uncertainties Ahead of Central Bank Meetings
Gold has experienced a robust recovery over the past month, primarily driven by weak US economic data, particularly concerning inflation figures. Speculations arose that the Federal Reserve's ability to continue raising interest rates would be limited, providing support for the precious metal's price surge. However, in recent sessions, this rebound has stalled as uncertainties loom in anticipation of the outcome of the Fed's meeting.
Investors are closely watching the Federal Reserve's meeting, as it will provide crucial insights into the central bank's monetary policy outlook and how it plans to address inflation concerns. The speculations surrounding the Fed's future rate hikes have added to the cautious sentiment in the gold market, leading to a pause in the metal's upward momentum.
Beyond the Fed meeting, investors are also keeping an eye on decisions from the European Central Bank (ECB) and the Bank of Japan (BOJ) later in the week. The ECB is expected to raise rates by 25 basis points on Thursday, signaling a shift in its monetary policy stance. On the other hand, the BOJ is likely to maintain its ultra-dovish approach on Friday, emphasizing its commitment to supporting the Japanese economy.
These upcoming central bank meetings have introduced further uncertainties into the market, causing investors to exercise caution and reassess their strategies. Gold, often sought as a safe-haven asset during times of economic uncertainty, is particularly sensitive to changes in interest rates and monetary policies, leading to the recent hesitation in its price movement.
As the central banks announce their decisions and provide guidance on their future policy trajectories, the gold market is expected to see increased volatility. The outcomes of these meetings will shape investor sentiment, potentially leading to new trends in the precious metal's price. In such a dynamic environment, traders and investors need to remain vigilant and closely monitor central bank communications to make informed decisions amid the evolving economic landscape.
EUR/USD daily chart
GBP/USD daily chart
Euro and Pound Weaken Against US Dollar Amidst Weak PMI Surveys from Europe
The euro and pound have been trading at moderately weaker levels against the US dollar, experiencing further declines following the release of weaker-than-expected PMI surveys from Europe. The data revealed a slowdown in economic activity, raising concerns about the region's recovery prospects.
Investors are closely monitoring the developments surrounding central bank meetings, particularly the Federal Reserve and the European Central Bank (ECB). The prevailing market sentiment suggests that the Fed is likely to implement a single rate hike and then pause, signaling a more cautious approach to addressing inflationary pressures. On the other hand, the ECB may have further rate adjustments to make as it grapples with economic uncertainties in the Eurozone.
These differing expectations for the two central banks could lead to significant fluctuations in the value of the euro in the currency markets. Investors are keeping a keen eye on any shifts in either or both of these views, as they can have a profound impact on the euro's trajectory.
The weakening of the euro and pound against the US dollar indicates growing concerns about the economic outlook for Europe. The region's PMI surveys have highlighted challenges in various sectors, and this has put pressure on the currencies.
In such a dynamic environment, currency traders need to remain vigilant and responsive to changing market sentiment and economic data. Any surprises or shifts in central bank policies can lead to rapid movements in currency pairs, presenting both opportunities and risks for traders.
As the central banks proceed with their monetary policy decisions, market participants will closely analyze their communications and guidance. Any indications of future rate adjustments or policy shifts could spark volatility in the currency markets, making it essential for traders to stay informed and adaptable in their strategies.
