Daily Market Analysis - MONDAY JULY 10, 2023
Key News:
USA - FOMC Member Daly Speaks
USA - FOMC Member Mester Speaks
USA - FOMC Member Bostic Speaks
UK - BoE Gov Bailey Speaks
US stocks closed the week on a downward trend as investors carefully analyzed a range of data released earlier in the month. This data instilled confidence in the stability of the US economy, leading to expectations of prolonged elevated interest rates.
Throughout the week, equity markets encountered challenges stemming from positive economic data, sparking speculations of a longer period of higher interest rates. After fluctuating and contemplating the potential for rate cuts later in the year, it seems that the markets have come to terms with the idea that the economic cycle will unfold over an extended timeframe. Consequently, the S&P 500 recorded a 1.2% decline.
S&P 500 daily chart
The Dow concluded the week with a loss and closed lower on Friday as traders assessed a monthly jobs report for June that fell short of expectations, ending a streak of 15 months of meeting estimates. Nonetheless, there remains anticipation that the Federal Reserve will proceed with a rate hike later this month.
Dow Jones Industrial Average Index daily chart
The US economy added 209,000 jobs in June, which fell short of the projected 225,000 and represented a substantial decline from the 306,000 jobs added in the previous month. This figure indicates the slowest pace of job creation since December 2020, raising concerns about the overall strength of the labor market.
US Nonfarm Payrolls
Despite the disappointing job growth figures, there was a positive aspect to the report with regards to wage growth. Average hourly earnings in June increased by 4.4%, surpassing the estimated 4.2%. This suggests that workers are experiencing higher wages, which could potentially contribute to increased consumer spending and economic growth.
While the market still expects a rate hike in July, there is speculation among investors that the cooling labor market might deter the Federal Reserve from implementing further rate hikes beyond July. This sentiment is echoed in a note from Morgan Stanley, stating that the current data may not meet the criteria for the Fed to deliver a hike in September.
In other news, the US-listed shares of Alibaba (NYSE: BABA) experienced an 8% rise following the announcement of a $984 million fine imposed by Chinese authorities on Ant Group. This marks the conclusion of Ant Group's extensive regulatory restructuring process, which has been closely monitored by investors and industry observers.
These developments in the job market and the regulatory landscape have contributed to a dynamic and evolving market environment, where investors are carefully evaluating the implications for monetary policy and the performance of specific companies like Alibaba.
Alibaba stock daily chart
As the second quarter of the 2023 earnings season begins, analysts are anticipating a consensus that S&P 500 earnings per share (EPS) will decline by 9% year-on-year. This decline is attributed to stagnant sales growth and margin compression, highlighting the challenges faced by companies. However, there is a particular focus on the impact of artificial intelligence (AI) on companies, given the significant developments in the tech sector this year.
The extent to which S&P 500 companies can effectively leverage AI to generate additional profits remains uncertain. Therefore, investors will closely examine management guidance and commentary to identify the companies that have the ability to enable, scale, and benefit from AI in the long term.
Certain companies have already presented revenue and earnings outlooks that surpassed expectations, instilling confidence in their ability to navigate the current landscape. For example, Micron Technology (MU) provided optimistic revenue and earnings outlooks, while NVIDIA (NVDA) delivered significantly higher-than-consensus sales guidance for the second quarter.
However, the shine of AI has been somewhat dulled by potential restrictions on the export of AI chips to China, which poses a notable risk for companies operating in this sector.
Policymakers in the G4 countries, including the Japanese yen (JPY), have shown remarkable consistency in their approach, leading to limited potential for the US dollar to appreciate against other major currencies. With interest rates and equities experiencing fluctuations, there is less room for significant adjustments in foreign exchange (FX) markets.
The European Central Bank (ECB) has closely aligned its approach with that of the Federal Reserve, sometimes even surpassing it in terms of rhetoric. This has prompted a reevaluation of the short-term outlook for the Eurozone, despite slower economic growth.
The ECB's singular focus on combating lower inflation has provided support for the euro. However, there are limits to this approach, as extreme measures to control inflation may only be effective for a certain period, particularly when the economy is already experiencing a technical recession.
If the trend persists, the more hawkish members of the ECB may adjust their stance, potentially leading to a decline in the EUR/USD exchange rate back to 1.07.
EUR/USD daily chart
In the upcoming week, investors will be keeping a close eye on a range of important economic indicators and events. One key highlight is the release of the consumer and producer price indexes, which provide crucial insights into inflationary pressures in the economy. These reports will be closely scrutinized as inflation remains a key concern for market participants.
Additionally, the import and export price indexes will offer further indications of global trade dynamics and the impact of tariffs and trade policies on prices. This data can provide valuable insights into the health of the international trade sector and its potential effects on the broader economy.
Investors will also be closely monitoring the Michigan consumer sentiment and expectations report, as consumer sentiment is an important gauge of consumer confidence and spending patterns. This data can provide valuable insights into the strength of the consumer-driven sectors of the economy.
Furthermore, speeches from various Federal Reserve officials, including Barr, Mester, Daly, Bostic, Bullard, Kashkari, and Waller, will be closely watched for any hints or signals regarding the central bank's monetary policy stance. These speeches can provide valuable insights into the thinking of key policymakers and the potential future direction of interest rates.
Overall, the combination of economic data releases and speeches from Federal Reserve officials will shape market expectations and influence investor sentiment in the coming week. Market participants will be analyzing these indicators and events for potential impacts on monetary policy decisions and overall market trends.
USA - FOMC Member Daly Speaks
USA - FOMC Member Mester Speaks
USA - FOMC Member Bostic Speaks
UK - BoE Gov Bailey Speaks
US stocks closed the week on a downward trend as investors carefully analyzed a range of data released earlier in the month. This data instilled confidence in the stability of the US economy, leading to expectations of prolonged elevated interest rates.
Throughout the week, equity markets encountered challenges stemming from positive economic data, sparking speculations of a longer period of higher interest rates. After fluctuating and contemplating the potential for rate cuts later in the year, it seems that the markets have come to terms with the idea that the economic cycle will unfold over an extended timeframe. Consequently, the S&P 500 recorded a 1.2% decline.
S&P 500 daily chart
The Dow concluded the week with a loss and closed lower on Friday as traders assessed a monthly jobs report for June that fell short of expectations, ending a streak of 15 months of meeting estimates. Nonetheless, there remains anticipation that the Federal Reserve will proceed with a rate hike later this month.
Dow Jones Industrial Average Index daily chart
The US economy added 209,000 jobs in June, which fell short of the projected 225,000 and represented a substantial decline from the 306,000 jobs added in the previous month. This figure indicates the slowest pace of job creation since December 2020, raising concerns about the overall strength of the labor market.
US Nonfarm Payrolls
Despite the disappointing job growth figures, there was a positive aspect to the report with regards to wage growth. Average hourly earnings in June increased by 4.4%, surpassing the estimated 4.2%. This suggests that workers are experiencing higher wages, which could potentially contribute to increased consumer spending and economic growth.
While the market still expects a rate hike in July, there is speculation among investors that the cooling labor market might deter the Federal Reserve from implementing further rate hikes beyond July. This sentiment is echoed in a note from Morgan Stanley, stating that the current data may not meet the criteria for the Fed to deliver a hike in September.
In other news, the US-listed shares of Alibaba (NYSE: BABA) experienced an 8% rise following the announcement of a $984 million fine imposed by Chinese authorities on Ant Group. This marks the conclusion of Ant Group's extensive regulatory restructuring process, which has been closely monitored by investors and industry observers.
These developments in the job market and the regulatory landscape have contributed to a dynamic and evolving market environment, where investors are carefully evaluating the implications for monetary policy and the performance of specific companies like Alibaba.
Alibaba stock daily chart
As the second quarter of the 2023 earnings season begins, analysts are anticipating a consensus that S&P 500 earnings per share (EPS) will decline by 9% year-on-year. This decline is attributed to stagnant sales growth and margin compression, highlighting the challenges faced by companies. However, there is a particular focus on the impact of artificial intelligence (AI) on companies, given the significant developments in the tech sector this year.
The extent to which S&P 500 companies can effectively leverage AI to generate additional profits remains uncertain. Therefore, investors will closely examine management guidance and commentary to identify the companies that have the ability to enable, scale, and benefit from AI in the long term.
Certain companies have already presented revenue and earnings outlooks that surpassed expectations, instilling confidence in their ability to navigate the current landscape. For example, Micron Technology (MU) provided optimistic revenue and earnings outlooks, while NVIDIA (NVDA) delivered significantly higher-than-consensus sales guidance for the second quarter.
However, the shine of AI has been somewhat dulled by potential restrictions on the export of AI chips to China, which poses a notable risk for companies operating in this sector.
Policymakers in the G4 countries, including the Japanese yen (JPY), have shown remarkable consistency in their approach, leading to limited potential for the US dollar to appreciate against other major currencies. With interest rates and equities experiencing fluctuations, there is less room for significant adjustments in foreign exchange (FX) markets.
The European Central Bank (ECB) has closely aligned its approach with that of the Federal Reserve, sometimes even surpassing it in terms of rhetoric. This has prompted a reevaluation of the short-term outlook for the Eurozone, despite slower economic growth.
The ECB's singular focus on combating lower inflation has provided support for the euro. However, there are limits to this approach, as extreme measures to control inflation may only be effective for a certain period, particularly when the economy is already experiencing a technical recession.
If the trend persists, the more hawkish members of the ECB may adjust their stance, potentially leading to a decline in the EUR/USD exchange rate back to 1.07.
EUR/USD daily chart
In the upcoming week, investors will be keeping a close eye on a range of important economic indicators and events. One key highlight is the release of the consumer and producer price indexes, which provide crucial insights into inflationary pressures in the economy. These reports will be closely scrutinized as inflation remains a key concern for market participants.
Additionally, the import and export price indexes will offer further indications of global trade dynamics and the impact of tariffs and trade policies on prices. This data can provide valuable insights into the health of the international trade sector and its potential effects on the broader economy.
Investors will also be closely monitoring the Michigan consumer sentiment and expectations report, as consumer sentiment is an important gauge of consumer confidence and spending patterns. This data can provide valuable insights into the strength of the consumer-driven sectors of the economy.
Furthermore, speeches from various Federal Reserve officials, including Barr, Mester, Daly, Bostic, Bullard, Kashkari, and Waller, will be closely watched for any hints or signals regarding the central bank's monetary policy stance. These speeches can provide valuable insights into the thinking of key policymakers and the potential future direction of interest rates.
Overall, the combination of economic data releases and speeches from Federal Reserve officials will shape market expectations and influence investor sentiment in the coming week. Market participants will be analyzing these indicators and events for potential impacts on monetary policy decisions and overall market trends.
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