US stocks drifted and bonds rallied as economic data came in below expectations. Traders now expect a quarter-point hike in interest rates by the Federal Reserve next week. Despite this, the S&P 500 remained relatively unchanged, and the 10-year Treasury yield fell, influenced by disappointing figures on industrial production and retail sales, as well as mixed results from Bank of America and Morgan Stanley.
In Europe, stocks gained, and government bonds rallied after a European Central Bank official suggested the end of the rate-hiking cycle may be near. The dollar was little changed, gold prices rose, and oil prices saw a slight increase.
Market Moves: forex day trading
- The S&P 500: Little change.
- The Nasdaq 100: Fell 0.4%.
- The Dow Jones Industrial Average: Little change.
- The Stoxx Europe 600: Rose 0.2%.
- The MSCI World index: Rose 0.1%.
- The Bloomberg Dollar Spot Index: Little change.
- The euro: Little change at $1.1226.
- The British pound: Little change at $1.3078.
- The Japanese yen: Rose 0.3% to 138.30 per dollar.
- Bitcoin: Fell 0.5% to $29,796.57.
- Ether: Little change at $1,891.95.
- 10-year Treasuries yield: Declined three basis points to 3.77%.
- Germany's 10-year yield: Declined eight basis points to 2.40%.
- Britain's 10-year yield: Declined eight basis points to 4.35%.
- West Texas Intermediate crude: Rose 0.3% to $74.40 a barrel.
- Gold futures: Rose 0.6% to $1,967.90 an ounce.
US Economy and Inflation:
Treasury Secretary Janet Yellen mentioned that a cooling labour market is helping to slow US inflation, along with other factors like housing costs and vehicle prices. The improved inflation situation comes as welcome relief for Yellen and the Biden administration after initially underestimating the inflation surge caused by the pandemic.
Economists and investors have reassessed recession risks due to receding inflation. Goldman Sachs and JPMorgan Chase have adjusted their estimates accordingly. The US consumer price index and core gauge have posted their smallest gains since 2021, indicating a deceleration in inflation.
Outlook and Risks:
The global stock market has seen a near-$10 trillion rally this year, but it may face a make-or-break moment as hundreds of companies report earnings over the next few weeks. S&P 500 firms are expected to post a 9% drop in profits in the second quarter, making it the worst season since 2020. Europe may fare even worse, with a projected 12% slump. Some indicators suggest an earnings recovery next year, but the market's reaction remains uncertain.
Investors are keeping an eye on several key areas:
1. Big Tech Influence: The technology-heavy Nasdaq 100's best-ever first-half was driven by AI enthusiasm. Investors will now be looking for evidence of AI's earnings implications in technology companies.
2. Inflation Effect: Cooling inflation has stoked optimism about the Federal Reserve's rate hikes, but companies are still facing elevated labour and other costs, affecting their pricing.
3. Consumer Squeeze: The tone around consumer spending is essential for assessing the health of Corporate America, with particular focus on auto sales and the travel and hospitality sector.
4. Europe's Waning Outperformance: European profits are expected to drop more than those in the US, driven by weakness in the manufacturing sector and currency fluctuations.
5. Choppy China Rebound: China's stock market has missed out on the global rally due to concerns about economic rebound, the property sector, and youth unemployment. Reports from automakers and technology firms' results will be closely watched.
The market sentiment is cautious due to mixed economic data and uncertainty surrounding the Federal Reserve's interest rate decisions. Traders are closely watching inflation trends and global economic developments, particularly in China. Upcoming events and economic indicators will likely influence market movements in the coming days. As a Forex day trader, it's essential to stay informed and vigilant during these uncertain times. Happy trading!
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