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Initial gains on Wall Street last Friday failed to find much follow through, as the Dow Jones Industrial Average (+0.3%) posted slight gains while the S&P 500 (-0.1%) and Nasdaq (-0.2%) closed in the red. US Consumer Confidence last Friday smashed previous expectations to turn to its highest level since September 2021 (72.6 vs. 65.6 consensus), with the excellent reading mainly against recession fears, given that previous recessions since 1968 were marked by declines in US consumer confidence data. .
However, earnings results from major US banks were more mixed, with JPMorgan and Wells Fargo outperforming estimates while Citigroup disappointing. The financial sector ended the day down 0.7%, as the SPDR Financial Sector Fund formed a bearish engulfing candle on the daily chart, which could indicate some exhaustion in the sector’s recent rally.
In the new trading week, the lighter US economic calendar and Fed hiatus will continue to leave much of the focus on US earnings season. While it is estimated that we are currently still in an “earnings slump” with the S&P 500’s third consecutive quarter earnings contraction expected in Q2, the divergence in stock market performance (S&P 500 is at its highest level since April 2022) appears to be pricing in to bottom out. in earnings, with a pickup in the third quarter onwards. Financial updates at the likes of Bank of America, Goldman Sachs, Netflix and Tesla will be key to watch this week to provide any verification.
US Treasury yields rebounded last Friday, but US 10-year yields held steady below major resistance at the 3.85% level. US interest rate expectations from Fed Funds futures have been largely unwavering, with the Fed’s last 25 basis points (bp) this month still the consensus. The VIX has returned to retest its June 2023 low, pointing to broader bullish sentiment despite near-term rebound risks. Further downside is likely to leave 14.60 as a key support to watch, having lifted the index on at least four previous occasions since 2019. On the upside, immediate resistance would be in check at 18.00.
Source: IG Charts
Asian Open Championship
Asian stocks appear poised for a soft open, with the ASX -0.10% and KOSPI -0.43% at the time of writing. The Japanese markets will be offline due to the Navy day, while the morning trading session for the Hong Kong markets has been postponed due to the release of the Typhoon No. 8 signal, which could set a calmer tone for the markets this morning.
However, all eyes will be on a series of Chinese economic data released later including Q2 GDP, with any weaker-than-expected reading likely to act as a dampener on the broader risk environment. Current projections are that China’s GDP growth rate in the second quarter will shift to 7.3% year-on-year growth, up from 4.5% in the first quarter, but the large underlying effects from last year may mask the underlying dynamics somewhat. On a quarterly basis, 0.5% growth is the consensus.
A series of key economic data will be released alongside, such as retail sales (estimated at 3.2% vs. 12.7% in June), industrial production (estimated at 2.6% vs. 3.5% in June) and fixed asset investment (3.5% vs. 4%). in June). Overall, the expected moderation in growth across indices may continue to point to tepid growth prospects for the world’s second largest economy.
The Hang Seng Index returned to retest the upper edge of the Ichimoku Cloud (daily) at 19,600 to end last week, with the past five interactions since April this year failing to find a successful breakout. In the near term, the 19,600 level also coincides with the 100-day moving average (MA). While a bullish cross on the Moving Average Convergence/Divergence (MACD) and the Relative Strength Index (RSI) above 50 might indicate some bullish momentum building recently, much remains dependent on the 100-day moving average reclaiming, alongside Along with the main psychological factors. 20,000 levels.
Source: IG Charts
On the watchlist: Australian dollar / US dollar Retest of June 2023 high ahead of China data, RBA minutes
AUD/USD has taken the recent announcement of the incoming RBA Governor, Michelle Bullock, in stride as the new appointment largely indicated no change in monetary policies. But with a slew of Chinese economic data looming, along with the release of the RBA minutes tomorrow, the pair is finding some resistance around 0.690 with a near-term RSI divergence bearish.
On the weekly chart, level 0.690 is also the upper edge of Ichimoku cloud resistance, as the pair failed to overcome the past three interactions since March 2022. In the future, any weaker-than-expected economic data from China could further translate into some selling pressure. Any downside might leave 0.678 in check as former resistance turned support. Failure to defend 0.678 could trigger a return towards 0.660, where the previous consolidation lies.
Source: IG Charts
Friday: DJIA +0.33%; S&P 500 -0.10%, NASDAQ -0.18%, DAX -0.22%, FTSE -0.08%
