Even though the gains weren’t spectacular, the US stocks rallied yesterday on a fairly wide front. The risk-on mood got a boost from robust earnings. Now that approximately half of the S&P 500 companies have reported earnings and over 90% of them have beaten the analyst consensus estimates, the investors feel good about pouring money into the stock market. Also the not-so-good data from the US was probably believed to keep the Fed from tapering the bond-buying program. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The US Dollar was under some pressure yesterday following the Fed’s unwillingness to commit to a tapering schedule. Commodity currencies NZD (+0.78%) and CAD (+0.60%) were the strongest movers against the greenback but have now given back some of the gains. Measured from the London session open yesterday, these currencies are, however, still in the lead with gains of 0.33% and 0.30% respectively. The weakest performers for the same period have been AUD (+0.01%)and GBP (+0.010%).
The US 10-year Treasury yield settled at 1.246%. The TIOmarkets commodity complex did pretty well in yesterday’s trading with silver (+2.64%) leading the rest but the rallies in gold (+2.01%) and WTI Crude (+1.70%) rallies were nothing to be ashamed of either. The loss of buying interest in cryptos meant that bitcoin closed the day unchanged while ethereum and litecoin rallied only 3.67% and 0.75% respectively.
While Robinhood fell 8% on its first day of trading (oops!) the stock market did pretty well. The NASDAQ Composite index (+0.11%) gained slightly yesterday while the S&P 500 (+0.42%) and the Dow Jones Industrial Average (+0.44%) managed decent gains supported by most of the sectors. Nine out of eleven sectors rallied yesterday with the consumer discretionary (+1.13%), the financial (+1.10%) and the materials (+1.10%) sectors leading. The only S&P 500 sectors losing ground in yesterday’s broad market rally were the communications services (-1.08% and the real estate (-0.30%).
The soft US data supported the markets as investors and traders took it as a que that the Fed wouldn’t be in a rush to taper due to weak economic conditions. The weekly jobless claims came in at 400K (382K expected) and the US second quarter GDP disappointed at 6.5% (8.5% expected). Today’s main risk events include the US PCI inflation data that is likely to be followed by traders and investors alike as they assess the inflation trends and Fed’s tapering timeframe. The other main risk events for today are the Canadian GDP release and Chicago PMI. For more information and details see the TIOmarkets economic calendar here.
Nasdaq could be correcting lower today as the market is looking a bit weak after yesterday’s failure to rally with the other major indices. Nasdaq is trading in a channel that’s low coincides with the 23.6% Fibonacci retracement level (14612). This is likely to be an important technical level but the key support is currently at 14452.60 It looks likely that (should the bearish indications prove correct and the market trades lower) the buyers would get interested in Nasdaq above this key support. If this fails to attract buyers then we’d need to look at 14064 where the 50% Fibonacci retracement and a previous resistance level from April this year coincide.
Market update: We highlighted on Monday how USDCAD after trading lower last week (with strong momentum) was likely to turn bearish. We suggested that the psychology among the market participants had changed and was now more bearish. It was our view that this could lead to rallies being sold in this week’s trading. The USDCAD rally failed at 1.2607 resistance, then broke the 1.2528 support and has been trading lower since. The 1.2250 – 1.2300 region could come into play eventually but it’s likely that there will be some ebb and flow before the level is reached. The market is now trading at 1.2429 support with the nearest resistance at 1.2525.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The FED||The Fed has now changed the tune and is moving away from the ultra-accommodative monetary policy. Currently, the expectation is that the first-rate hike would take place in the second quarter of 2022 but the latest indication from the Fed is that they are not in a hurry to start tapering.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus since the beginning of the pandemic. Now, the US lawmakers have agreed to a $1 trillion infrastructure spending plan.|
|Yields||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower since March 2021. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Employment||Even though the June NFP report came in better than anticipated (+850K) the total is still 6.8 million jobs lower than at its peak in February last year. However, the Fed has said earlier recently that believes that the US is on a path to a very strong labour market as indicators of activity and employment continue to improve.|
|Inflation||The year on year headline CPI change for June was 5.4% (4.9% expected. The Fed has taken a view that the inflation is transitory and will be therefore likely to fade away.|
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Market News & Facts
- Australia second quarter PPI 0.7% (0.4% previous)
- US initial jobless claims 400K (382K expected)
- US Q2 GDP 6.5% (8.5% expected)
- ECB to increase rates only when convinced inflation stays above 2%
- RBA to hold taper due to Sydney lockdown
- NZ July Business Confidence -3.8% (-0.6% previous)
- One trillion USD infrastructure deal reached in the US Senate
- Fed sees higher inflation due to transitory factors
- Fed: Substantial further progress needed before tapering
- German GfK consumer confidence -0.3 (0.9 expected)
- Pfizer has a vaccine for Delta variant
- IMF forecasting weaker growth in Emerging Markets
- US earnings keep coming in better than analysts projected
- Australian second-quarter CPI 3.8% y/y (3.8% expected)
- US July CB consumer confidence 129.1 (123.9 expected)
- Richmond Fed July manufacturing index 27 (20 expected)
- US durable goods orders for June 0.8% (2.1% expected)
- The FOMC expected to be neutral and to slow the USD strength
- German IFO Business Climate Index for July 100.8 (102.10 expected)
- Amazon not to accept bitcoin in 2021
The Next Main Risk Events
- CAD – GDP m/m
- USD – Core PCE Price Index m/m
- USD – Chicago PMI
- Revised UoM Consumer Sentiment
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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