Daily Market Analysis - MONDAY JULY 24, 2023Key News:
UK - S&P Global/CIPS UK Manufacturing PMI
USA - S&P Global US Services PMI (Jul)
The Dow Jones Industrial Average celebrated a remarkable milestone on Friday, securing its 10th consecutive weekly gain and extending its longest winning streak since 2017. However, the market's positive performance was tempered by cautiousness among traders ahead of the upcoming quarterly results from major tech companies.
The Dow managed a marginal increase of 0.01%, equivalent to a mere 3 points, which might seem modest, but it's significant given the index's prolonged daily winning streak, last witnessed on August 7, 2017. The primary force behind the Dow's recent success lies in the gains made by defensive sectors, particularly utilities, which have helped bolster overall market sentiment.
In contrast, the Nasdaq experienced a slight decline of 0.2%, while the broader S&P 500 index edged up by 0.1%, showcasing a mixed performance across the board.
Traders remained watchful and exercised caution as they eagerly await the upcoming quarterly reports from major tech companies. These reports could have a considerable impact on market dynamics, influencing the direction of future trades and investor sentiment.
NASDAQ indices daily chart
DJI indices daily chart
S&P500 indices daily chart
As the new week kicked off, gold prices experienced a slight dip as investors exercised caution ahead of a highly anticipated Federal Reserve meeting. Meanwhile, copper prices faced significant losses, primarily driven by concerns surrounding weakening demand in China.
The metal market witnessed additional pressures with the dollar staging a recovery. The greenback strengthened, moving away from the 15-month lows it had reached earlier in July.
These developments have created a sense of uncertainty and wariness among investors, who are closely monitoring the upcoming Federal Reserve meeting for any signals that could impact the precious metals and copper markets. The performance of the dollar is also being closely scrutinized, as its strength or weakness can have substantial implications for metal prices and global trade dynamics.
In light of the prevailing economic uncertainties, market participants are treading carefully and making informed decisions as they navigate through this crucial week, where the outcomes of central bank policies and macroeconomic indicators are expected to shape market trends in the near term.
XAU/USD daily chart
The spotlight in recent market activity has been firmly fixed on the Federal Reserve's forthcoming decision on interest rates, set to be revealed at the conclusion of a two-day meeting on Wednesday. The prevailing consensus among investors is that the central bank will opt to raise interest rates by 25 basis points.
Nevertheless, there exists a strong belief among market participants that the Federal Reserve might also indicate a pause in future rate hikes. With the central bank nearing the conclusion of its nearly 16-month-long rate hike cycle, such a stance could signal a potential break from the previous trend of steady increases in interest rates.
This prospect of an extended pause in rate hikes has caught the attention of investors, particularly in relation to the impact on the precious metal market, notably gold. Historically, rising interest rates tend to elevate the opportunity cost of investing in gold, as higher rates make alternative assets more appealing for yield-seeking investors. Conversely, if the Federal Reserve hints at a pause or slower pace of future rate increases, it could potentially be favorable for gold, as it reduces the opportunity cost of holding the precious metal compared to other interest-bearing assets.
As the markets eagerly await the Fed's decision and the accompanying guidance, the implications for gold and other asset classes remain uncertain. The outcome of the meeting and the central bank's tone in their statements will undoubtedly have significant repercussions on investment strategies and market sentiment in the days to come.
EUR/USD daily chart
The dynamics in the EUR forward curve are undergoing a shift due to two essential factors. Firstly, foreign exchange traders are adjusting their pricing of lower US real rates in the long-term forwards after the recent Consumer Price Index (CPI) report. This indicates a realization that they may have been overly aggressive in their initial assessments. Secondly, the impact of ECB commentary on the Eurozone's economic data and inflation is likely to moderate, given the weaker economic indicators in the region.
The Bank of Japan's decision on maintaining its current interest rates is also a significant point of interest. With rates at 0% or in negative territory for an extended period, it is somewhat expected that they will continue with this stance.
China's 0% Consumer Price Index (CPI) rate is another crucial observation, as its potential spread could impact Japan first and have broader implications for global markets, particularly for stock markets and the future trajectory of the dollar. The actions and statements of these central banks will be closely watched by investors, as they could set the tone for market movements in the days to come.
On a different note, the US earnings season is entering a crucial phase this week, with major companies like Meta Platforms, Microsoft, and Alphabet preparing to release their reports. These earnings announcements are likely to have a significant impact on stock markets and investor sentiment.
As the week unfolds, investors will be navigating through these key developments in global monetary policies, inflation trends, and corporate earnings, which will undoubtedly shape market dynamics and future trading strategies.
MSFT stock daily chart
META stock daily chart
GOOG stock daily chart
Absolutely, the upcoming earnings results of major companies like Meta Platforms, Microsoft, and Alphabet are crucial in meeting market expectations and justifying the current valuation of the S&P 500. The current earnings multiple of 20 times and the substantial year-to-date gains of 19% in the index indicate high market optimism.
Investors will be closely scrutinizing these earnings reports to assess the health and potential direction of the market. Meeting or exceeding market expectations in these reports will likely be seen as a positive sign, reinforcing confidence in the ongoing market rally. On the other hand, any disappointments or weaker-than-expected results could raise concerns and potentially lead to market corrections.
Given the prevailing market conditions and the momentum in the S&P 500, investors are eager to ascertain the sustainability of the rally and whether the current valuations are justified by the underlying company fundamentals.
As the earnings season unfolds, the market sentiment will be heavily influenced by the performance of these major companies, as well as the guidance provided by their management teams.
