✅ Daily Market Analysis - TUESDAY JULY 25, 2023

25 июл. 2023 г.

Key News:

Canada - Manufacturing Sales (MoM)
USA - S&P/CS HPI Composite - 20 n.s.a. (YoY) (May)
USA - CB Consumer Confidence (Jul)

On Monday, the Dow Jones Industrial Average extended its winning streak with an impressive eleventh-straight gain, primarily driven by a surge in energy stocks. Investor sentiment remained upbeat as they embraced the better-than-expected quarterly results from major technology companies. Additionally, market participants were eagerly awaiting the upcoming Federal Reserve's decision later in the week.

Similarly, the S&P 500 also experienced gains, propelled by strength in energy stocks. Investors continued to digest the positive quarterly reports from prominent tech firms, contributing to the positive market sentiment. The anticipation for the Federal Reserve's decision added to the overall optimism, with investors closely monitoring the central bank's next move.


Dow Jones Industrial Average indices daily chart



S&P 500 indices daily chart



Alphabet (NASDAQ: GOOGL) and Microsoft (NASDAQ: MSFT), two major tech giants, are set to announce their earnings after the market closes on Tuesday.

The tech sector faced some challenges last week, as bullish bets were affected by declines in Tesla (NASDAQ: TSLA) and Netflix (NASDAQ: NFLX) stocks. These slumps in prominent tech companies had an impact on investor sentiment towards the sector. As Alphabet and Microsoft prepare to release their earnings reports, investors will closely watch for any insights into the overall health and performance of the tech industry.


GOOGL stock daily chart


TSLA stock daily chart


Wedbush analysts hold a positive outlook for this week, presenting a different scenario compared to the previous one, particularly for the tech sector.

Their optimism is based on several contributing factors, including the strong performance of cloud services, monetization of artificial intelligence (AI), stabilization of digital advertising, and an overall environment of increased confidence in IT spending. With these factors in play, the analysts believe there is a compelling case for investing in tech stocks during the second quarter tech earnings season.

In the currency markets, the US dollar exhibited sustained strength during overnight trading, continuing a significant rebound observed in the previous session. This strength led to the USD/JPY pair rising above the 140.00 level once again, indicating a bullish trend for the dollar against the Japanese yen. Investors and traders will closely monitor the dollar's movements in response to various economic factors and events in the global market.


USD/JPY daily chart

The recent reversal of the US dollar's weakness can be attributed to an uptick in US yields. Over the past week, the 2-year US Treasury bond yield rose by slightly over 20 basis points (bps) as market participants adjusted their predictions concerning the magnitude of the Federal Reserve's rate cuts for the upcoming year. However, the forecast for one final rate hike this month saw little change, indicating that investors are still expecting some tightening by the central bank in the near term.


US Dollar Currency Index daily chart

This week holds significant central bank meetings, with the Federal Reserve's meeting on Wednesday being particularly noteworthy. Interest rates have either reached their peak levels or are very close to doing so, and there is a possibility that this week could witness the Fed and ECB announcing their final rate hike in their tightening cycles.

PMI data offers insights into the ongoing global economic cooling trend. Inflation is also on the decline, largely due to favorable base effects, falling energy prices, and slower growth in food costs.

Recent PMI data from the eurozone, the UK, and the US all convey a similar message. The manufacturing sectors continue to face challenges, with the US performing better than expected. However, expectations for growth in services are slowing. These surveys indicate clear signs of further economic cooling, reduced inflationary pressures, and weaker hiring trends.

While central banks may find some relief in the data, it's unlikely to be sufficient for them to claim victory or explicitly announce the end of their tightening cycles. Policymakers will proceed with extreme caution, although they will be encouraged by the positive data observed over the last month or two.

Gold, in the meantime, appears to be pausing momentarily in anticipation of the upcoming Fed meeting on Wednesday. The yellow metal recently received a significant boost from positive economic data, coming close to reaching the $2,000 mark at one point last week. Investors will closely monitor the Fed's decisions and statements for further clues about the future direction of gold prices.


XAU/USD daily chart

Indeed, there has been some profit-taking in the gold market following the recent surge, causing the price to pull back to around $1,960. These price fluctuations have made it challenging to definitively interpret the short-term direction of gold.

The future trajectory of gold will be heavily influenced by the decisions of the Federal Reserve. If the Fed provides a clear indication that the current rate hike will be the final one or surprises the market by not raising rates, it could trigger a bullish sentiment for gold. In such a scenario, the precious metal may have the potential to test the $2,000 level once again. A breakthrough above this psychological and technical barrier would serve as a strong bullish signal for gold, attracting further investor interest. Investors will closely monitor the Fed's actions and statements for any cues on how gold might behave in the coming days. The central bank's communication and stance on monetary policy will play a crucial role in shaping gold's price direction in the near term.