2023/02/08 (166.029) Technical Analysis

The Calm Before The Storm Next Week?
Don’t Be Surprised If The DOW Closes Negatively This week!

Dow Jones Is Weakening Again, Alphabet Is Collapsing Heavily

The hope that the US stock exchanges would take a somewhat less restrictive stance on Wednesday largely evaporated again on Wednesday. Some of the most important share indices closed significantly lower after Fed officials emphasized the need for further interest rate hikes in the fight against high inflation. Technology stocks, which were still very strong on Tuesday, were particularly under pressure. The tech-heavy Nasdaq 100 was down 1.83 percent to 12,495.38 points. The market-wide S&P 500 fell 1.11 percent to 4117.86 points. The Dow Jones Industrial fell 0.61 percent to 33,949.01 points. The leading US index is currently supported by the 50-day average line for the medium-term trend. At the same time, there is currently stronger resistance for the stock market barometer in the area around 34,300 points.

The day before, US Federal Reserve Chairman Jerome Powell had emphasized the need for further interest rate hikes in a speech. At the same time, however, he also said that the process of declining inflation had already begun – and investors had relied on this and pushed prices up. On Wednesday, however, there was a bit of disillusionment again. The influential New York Federal Reserve Chairman, John Williams, said that the inflation outlook was still surrounded by a great deal of uncertainty. He added that if the situation changes, the Fed could act faster than the current 0.25 percentage point hike in interest rates. The US Federal Reserve may have to follow a restrictive course for a few more years. Fed Chair Christopher Waller made a similar statement.

Looking at the individual values, the shares of Microsoft paid tribute to their significant gains from the previous day with slight losses, but did even better than the market. The software company is currently hoping to break Google’s dominance in web searches. The technology behind the text machine ChatGPT should allow users to have conversations with Microsoft’s search engine Bing. Meanwhile, Google is also developing in this direction – the course has been set for the competition between the tech giants in artificial intelligence. However, according to reports, Google’s newly launched chatbot Bard with artificial intelligence only provides inaccurate answers. The A shares of Google parent Alphabet fell by almost eight percent.

Fresh business figures are also causing movement. Fortinet’s shares at the top of the S&P 500 jumped eleven percent. The software company performed robustly and presented a better-than-expected sales forecast for the current year.

Yesterday Powell Says Interest Rates Are Likely To Rise Further As US Economic Optimism Find It`s Own At 10-Month

Fed Chair Jerome Powell reiterated that the disinflationary process has begun, particularly in the goods sector, and that the Fed has the tools to bring down inflation to its 2% target when speaking at the Economic Club of Washington. At the same time, when asked about the strong January jobs report, Powell’s comments did not suggest that it would change the central bank’s approach to future rate increases.

The IBD/TIPP Economic Optimism Index in the US increased to 10-month high of 45.1 in February of 2023 from 42.3 in January, but remained in pessimistic territory. 53% of adults now think the U.S. economy is in a recession, down from 55% last month. The 6-month outlook for the US economy increased to 39.7 from 36.2. The personal finances subindex went up to 52.6 from 49.9, striding back into optimistic territory and the gauge of support for federal economic policies held rose to 43.1 from 40.7.

Wall Street Were Under Pressure On Todays Trading Session

US stocks fell on Wednesday, with investors worrying about the impact of a slowing economy on corporate profits and digesting comments from Fed Powell. The Dow Jones was down more than 100 points, and the S&P 500 retreated 0.8%. The Nasdaq underperformed and shed more than 1%, dragged by an over 7% loss by Google’s parent Alphabet Inc. as concerns lingered about rising competition in the artificial intelligence space. Also, Chipotle dropped more than 5% after quarterly results missed expectations. On the other hand, CVS and Uber surged more than 4% and 2.5%, thanks to upbeat Q4 data. Additionally, Microsoft was slightly higher after the software giant said it was updating its Edge web browser and Bing search engine with artificial intelligence. On Tuesday, Fed Chair Jerome Powell reiterated that the disinflationary process has begun, but the terminal level of the Fed funds might still be higher if robust labor data persists.

MBA Mortgage Applications Rebound While US Wholesale Inventories Growth Slows To Near 1-1/2-Year Low

Mortgage applications in the US surged 7.4% in the week ended February 3rd, 2023, after plunging 9% in the previous period, with applications rising for both refinancing (17.7%) and purchases (3.1%), data from the Mortgage Bankers Association showed. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) edged down 1bps to 6.18%, to hit a new low since September.

Wholesale inventories in the United States went up by 0.1% from a month earlier to $932.9 billion in December 2022, in line with preliminary estimates and slowing from the 0.9% rise in the previous month. It was the smallest increase in wholesale inventories since July 2020, suggesting that businesses were scaling down their restocking efforts as demand weakens amid tighter financial conditions. Inventories rose at a slower pace for durable goods (0.9% vs 1% in November) and stocks of non-durable goods decreased (-1.2% vs 0.8%), especially for petroleum (-5.8% vs 2.2%), farm products (-3.6% vs -1.9%), apparel (-2.3% vs 2.4%) and paper (-2.3% vs -0.8%). On an annual basis, wholesale inventories rose by 17.6%, slightly below an earlier reading of 17.8%.

EURUSD Remains Close To 9-Month High
GBPUSD Suprisly Hovers Around 1-Month Low

The euro held above $1.07 in mid-February, not far from a near nine-month high of $1.1034 touched last week, supported by the European Central Bank’s hawkish stance. ECB’s Joachim Nagel joined a chorus of policymakers calling for even more tightening in the spring to bring inflation back to the 2% target, while board member Isabel Schnabel also said that the rate hikes delivered by the ECB so far were having little impact on inflation. The bloc’s central bank raised interest rates by 50 bps at its February meeting to the highest levels since late 2008, flagging one more increase of the same magnitude next month and reaffirming its commitment to battle high inflation. Elsewhere, demand for the dollar remained solid following a strong US jobs report released on Friday. At the same time, Federal Reserve Chair Jerome Powell said US interest rates might need to go higher, while the “disinflationary” process appeared to be underway.

The British pound remained below $1.21 after touching $1.1958 on Tuesday, its weakest level since January 6th, as the Bank of England was seen as more dovish relative to the European Central Bank and the US Federal Reserve. At the same time, investors awaited more comment from UK policymakers and Britain’s fourth-quarter GDP data due on Friday, which might provide further clues about the central bank’s next moves. UK officials delivered a 10th straight interest rate hike in February, raising Bank Rate by 50 bps to 4%, its highest since late 2008. However, the central bank believed that inflation may have peaked, signaling that its tightening cycle might come to an end. Meanwhile, BoE chief economist Huw Pill said on Monday that the bank was prepared to do more to get inflation to target. Elsewhere, the US dollar held close to one-month high following stronger-than-expected US jobs data and as Federal Reserve Chair Jerome Powell said US interest rates might need to go higher.

Dollar Steadies As Traders Mull Fed Outlook,
So Wall Street Sheds On Profit Outlook Fears Today

The dollar index steadied above 103 on Wednesday after being pressured in the previous session, as Federal Reserve Chair Jerome Powell’s latest remarks sounded less hawkish than anticipated. The official confirmed the start of disinflationary processes but warned more rate hikes would be needed, and the terminal rate could peak higher if the jobs market remains strong. The latest data showed that the US economy added 517K jobs in January, the most since July and well above the market expectations of 185K. At the same time, ISM data pointed to a solid services sector, adding to persistent inflation concerns and bolstering the case for tightening. Investors now look ahead to a slew of US economic data and more Fed commentary on Wednesday for further guidance.

All three major US stocks closed in negative territory on Wednesday, as investors were concerned about the impact of a slowing economy on corporate profits and digested comments from Fed Powell on Tuesday. The Dow Jones lost more than 200 points, and the S&P 500 dipped 1.1%. The Nasdaq shed almost 1.7% due to a heavy selloff in tech, led by an over 7.6% loss by Google’s parent Alphabet after its new AI chatbot Bard delivered an incorrect answer in an online advertisement. Also, Amazon and Meta were down 2.2% and 4.3% respectively, while Microsoft finished slightly higher after the software giant said it was updating its Edge web browser and Bing search engine with artificial intelligence. On the flip side, CVS Health Corp and Uber surged more than 3.4% and 5.5%, after upbeat earning results. Chipotle dropped 5% after its quarterly results missed expectations.