Daily Market Analysis - THURSDAY JUNE 29, 2023
Mixed Trading Day Driven By Market Reactions To Powell's Remarks And Tech Stock Performance
Key News:
USA - Fed Chair Powell Speaks
USA - GDP (QoQ) (Q1)
USA - Initial Jobless Claims
USA - Pending Home Sales (MoM) (May)
During Wednesday's trading session, the Nasdaq saw a moderate rise, driven by the positive performance of large-cap stocks. However, contrasting this upward trend, both the S&P 500 and the Dow ended the day with losses. The decline in these indices was influenced by comments made by US Federal Reserve Chair Jerome Powell. Powell's statements indicated a strong possibility of further rate hikes and expressed skepticism regarding inflation reaching the central bank's target rate within the foreseeable future, stating that it may not occur "this year or next year."
NASDAQ indice daily chart
DJI indice daily chart
SPX indice daily chart
During a European Central Bank forum, US Federal Reserve Chair Jerome Powell expanded on his earlier remarks, discussing the potential for future rate increases and keeping the possibility of a hike at the upcoming policy meeting in late July on the table.
Despite an initial dip into negative territory, investors exhibited a relatively calm reaction to Powell's comments, likely due to positive indications of economic strength.
Throughout the trading session, one notable highlight was Apple Inc (NASDAQ: AAPL), which achieved a new all-time high and closed at a record high for the second consecutive session. This impressive performance from Apple contributed to the overall gains in the market. Additionally, prominent companies such as Tesla (NASDAQ: TSLA), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOGL) played significant roles in driving the upward momentum observed in the S&P index.
The market's response to Powell's statements suggests that investors are maintaining a cautiously optimistic outlook, considering both the potential for future rate increases and the underlying strength of the economy. As they assess these factors, market participants closely monitor the upcoming policy meeting and eagerly anticipate further developments that could shape the trajectory of the financial markets.
Apple daily chart
However, chipmaker Nvidia (NASDAQ: NVDA), known for its popularity among investors interested in artificial intelligence, experienced a decline of 1.8% and emerged as the primary detractor for the benchmark index. This downward movement was triggered by a report from the Wall Street Journal, indicating that the United States might impose additional restrictions on the export of AI chips to China. The prospect of stricter regulations in this key market created concerns and impacted Nvidia's stock performance.
Despite the decline in Nvidia's shares, European markets maintained their positive momentum on the following day, following a break in the six-day losing streak observed on Tuesday. However, gains were tempered by remarks made by Federal Reserve Chairman Jay Powell, which injected a note of caution into the market sentiment.
Meanwhile, the Japanese yen continued to weaken, reaching record lows on a trade-weighted basis. This decline in the yen was sustained, and Bank of Japan Governor Kazuo Ueda provided no indication that policymakers were ready to intervene or halt this ongoing depreciation. The weakening yen can have implications for various sectors of the Japanese economy, including exports and international trade.
Investors and market participants closely monitor the developments surrounding Nvidia's potential export restrictions and their implications for the global technology sector.
USD/JPY daily chart
The subdued performance observed in the US market sets the stage for a flat opening in European markets. However, market participants are cautiously optimistic that upcoming data releases, starting with Germany's June inflation figures, could potentially influence a softening of the prevailing hawkish stance. In recent months, there has been a noticeable deceleration in inflationary pressures, with the rate dropping from 7.6% in April to 6.3% in May. While the anticipated June figures are expected to show a modest increase to 6.8%, they are unlikely to alleviate the concerns held by the European Central Bank (ECB) regarding the rapid receding of inflation.
The market's focus now turns to the crucial release of Germany's inflation data, as it carries significant implications for the broader Eurozone economy. Analysts and investors alike will closely scrutinize these figures to assess the extent of inflationary pressures within the region and to gain insights into the potential policy responses from the ECB. A continuation of the trend towards lower inflation could reinforce the calls for a more accommodative stance, potentially shifting market expectations away from imminent rate hikes.
While the June inflation figures are expected to reflect a slight uptick, it is crucial to note that they are unlikely to significantly alter the prevailing concerns surrounding inflationary dynamics. The ECB remains vigilant in monitoring the situation and is poised to take appropriate action if inflationary pressures fail to stabilize or rise in line with their targets.
Beyond Germany's inflation data, market participants will also closely monitor upcoming releases from other Eurozone countries, as they provide additional insights into the broader inflationary trends within the region. The overall goal is to gain a comprehensive understanding of the underlying inflation dynamics and their potential impact on the ECB's monetary policy decisions.
GBP/USD daily chart
Towards the end of the London session, the British pound experienced pronounced weakness within the G10 space. This decline can be attributed to remarks made by Bank of England (BoE) Governor Andrew Bailey during his participation in the ECB Forum on Central Banking in Sintra. Bailey's comments regarding UK interest rates contributed to the pound's vulnerability, as he indicated that they are likely to remain elevated for an extended period due to persistent inflationary pressures.
The latest data on headline inflation in the UK revealed no change, with a figure of 8.7% for the twelve months leading up to May. Moreover, year-on-year core inflation, excluding food and energy prices, surged to 7.1%. Bailey highlighted this as a specific challenge confronting the UK economy, further dampening market sentiment towards the pound. Concerns arose regarding the potential risks of a recession stemming from excessive policy tightening in response to the elevated inflation levels.
Investors responded to Bailey's remarks by reassessing their outlook on the pound, which resulted in notable weakness for the currency. The market began to question the potential consequences of prolonged high interest rates and the potential negative impact on economic growth. The possibility of a recession became a prominent concern, given the perceived risks associated with excessive policy tightening.
As market participants absorb Bailey's comments and evaluate the implications for the UK economy, the British pound remains under scrutiny. Traders and analysts closely monitor any further developments related to inflationary pressures and the Bank of England's policy stance. The market sentiment towards the pound will likely be influenced by future economic data releases and any subsequent statements from central bank officials, as they provide insights into the potential course of action and the management of inflationary challenges.
EUR/USD daily chart
The euro experienced a downturn in sentiment yesterday, primarily driven by a mixed set of data releases. While the Italian Producer Price Index (PPI) showed a slower decline than anticipated in May, indicating lower deflationary pressures in the country, consumer price inflation in the eurozone eased more than expected, signifying a slowdown in price growth. These contrasting inflationary signals added to the overall weak sentiment surrounding the euro.
Adding to the concerns, the European Central Bank (ECB) reported a deceleration in money supply growth, indicating a moderation in liquidity. This moderation could potentially impact economic activity and limit the availability of funds for businesses and consumers. Furthermore, loans to the private sector expanded at a slower rate than expected, suggesting a potential tightening of credit conditions due to higher interest rates. This tightening of credit could hinder investment and spending, thereby impacting economic growth.
Taken together, these indicators pointed towards a more restrictive credit environment and raised concerns about the overall economic outlook. The mixed data and the signals of potential credit tightening weighed on market sentiment towards the euro, contributing to its weaker performance.
Key News:
USA - Fed Chair Powell Speaks
USA - GDP (QoQ) (Q1)
USA - Initial Jobless Claims
USA - Pending Home Sales (MoM) (May)
During Wednesday's trading session, the Nasdaq saw a moderate rise, driven by the positive performance of large-cap stocks. However, contrasting this upward trend, both the S&P 500 and the Dow ended the day with losses. The decline in these indices was influenced by comments made by US Federal Reserve Chair Jerome Powell. Powell's statements indicated a strong possibility of further rate hikes and expressed skepticism regarding inflation reaching the central bank's target rate within the foreseeable future, stating that it may not occur "this year or next year."
NASDAQ indice daily chart
DJI indice daily chart
SPX indice daily chart
During a European Central Bank forum, US Federal Reserve Chair Jerome Powell expanded on his earlier remarks, discussing the potential for future rate increases and keeping the possibility of a hike at the upcoming policy meeting in late July on the table.
Despite an initial dip into negative territory, investors exhibited a relatively calm reaction to Powell's comments, likely due to positive indications of economic strength.
Throughout the trading session, one notable highlight was Apple Inc (NASDAQ: AAPL), which achieved a new all-time high and closed at a record high for the second consecutive session. This impressive performance from Apple contributed to the overall gains in the market. Additionally, prominent companies such as Tesla (NASDAQ: TSLA), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOGL) played significant roles in driving the upward momentum observed in the S&P index.
The market's response to Powell's statements suggests that investors are maintaining a cautiously optimistic outlook, considering both the potential for future rate increases and the underlying strength of the economy. As they assess these factors, market participants closely monitor the upcoming policy meeting and eagerly anticipate further developments that could shape the trajectory of the financial markets.
Apple daily chart
However, chipmaker Nvidia (NASDAQ: NVDA), known for its popularity among investors interested in artificial intelligence, experienced a decline of 1.8% and emerged as the primary detractor for the benchmark index. This downward movement was triggered by a report from the Wall Street Journal, indicating that the United States might impose additional restrictions on the export of AI chips to China. The prospect of stricter regulations in this key market created concerns and impacted Nvidia's stock performance.
Despite the decline in Nvidia's shares, European markets maintained their positive momentum on the following day, following a break in the six-day losing streak observed on Tuesday. However, gains were tempered by remarks made by Federal Reserve Chairman Jay Powell, which injected a note of caution into the market sentiment.
Meanwhile, the Japanese yen continued to weaken, reaching record lows on a trade-weighted basis. This decline in the yen was sustained, and Bank of Japan Governor Kazuo Ueda provided no indication that policymakers were ready to intervene or halt this ongoing depreciation. The weakening yen can have implications for various sectors of the Japanese economy, including exports and international trade.
Investors and market participants closely monitor the developments surrounding Nvidia's potential export restrictions and their implications for the global technology sector.
USD/JPY daily chart
The subdued performance observed in the US market sets the stage for a flat opening in European markets. However, market participants are cautiously optimistic that upcoming data releases, starting with Germany's June inflation figures, could potentially influence a softening of the prevailing hawkish stance. In recent months, there has been a noticeable deceleration in inflationary pressures, with the rate dropping from 7.6% in April to 6.3% in May. While the anticipated June figures are expected to show a modest increase to 6.8%, they are unlikely to alleviate the concerns held by the European Central Bank (ECB) regarding the rapid receding of inflation.
The market's focus now turns to the crucial release of Germany's inflation data, as it carries significant implications for the broader Eurozone economy. Analysts and investors alike will closely scrutinize these figures to assess the extent of inflationary pressures within the region and to gain insights into the potential policy responses from the ECB. A continuation of the trend towards lower inflation could reinforce the calls for a more accommodative stance, potentially shifting market expectations away from imminent rate hikes.
While the June inflation figures are expected to reflect a slight uptick, it is crucial to note that they are unlikely to significantly alter the prevailing concerns surrounding inflationary dynamics. The ECB remains vigilant in monitoring the situation and is poised to take appropriate action if inflationary pressures fail to stabilize or rise in line with their targets.
Beyond Germany's inflation data, market participants will also closely monitor upcoming releases from other Eurozone countries, as they provide additional insights into the broader inflationary trends within the region. The overall goal is to gain a comprehensive understanding of the underlying inflation dynamics and their potential impact on the ECB's monetary policy decisions.
GBP/USD daily chart
Towards the end of the London session, the British pound experienced pronounced weakness within the G10 space. This decline can be attributed to remarks made by Bank of England (BoE) Governor Andrew Bailey during his participation in the ECB Forum on Central Banking in Sintra. Bailey's comments regarding UK interest rates contributed to the pound's vulnerability, as he indicated that they are likely to remain elevated for an extended period due to persistent inflationary pressures.
The latest data on headline inflation in the UK revealed no change, with a figure of 8.7% for the twelve months leading up to May. Moreover, year-on-year core inflation, excluding food and energy prices, surged to 7.1%. Bailey highlighted this as a specific challenge confronting the UK economy, further dampening market sentiment towards the pound. Concerns arose regarding the potential risks of a recession stemming from excessive policy tightening in response to the elevated inflation levels.
Investors responded to Bailey's remarks by reassessing their outlook on the pound, which resulted in notable weakness for the currency. The market began to question the potential consequences of prolonged high interest rates and the potential negative impact on economic growth. The possibility of a recession became a prominent concern, given the perceived risks associated with excessive policy tightening.
As market participants absorb Bailey's comments and evaluate the implications for the UK economy, the British pound remains under scrutiny. Traders and analysts closely monitor any further developments related to inflationary pressures and the Bank of England's policy stance. The market sentiment towards the pound will likely be influenced by future economic data releases and any subsequent statements from central bank officials, as they provide insights into the potential course of action and the management of inflationary challenges.
EUR/USD daily chart
The euro experienced a downturn in sentiment yesterday, primarily driven by a mixed set of data releases. While the Italian Producer Price Index (PPI) showed a slower decline than anticipated in May, indicating lower deflationary pressures in the country, consumer price inflation in the eurozone eased more than expected, signifying a slowdown in price growth. These contrasting inflationary signals added to the overall weak sentiment surrounding the euro.
Adding to the concerns, the European Central Bank (ECB) reported a deceleration in money supply growth, indicating a moderation in liquidity. This moderation could potentially impact economic activity and limit the availability of funds for businesses and consumers. Furthermore, loans to the private sector expanded at a slower rate than expected, suggesting a potential tightening of credit conditions due to higher interest rates. This tightening of credit could hinder investment and spending, thereby impacting economic growth.
Taken together, these indicators pointed towards a more restrictive credit environment and raised concerns about the overall economic outlook. The mixed data and the signals of potential credit tightening weighed on market sentiment towards the euro, contributing to its weaker performance.
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