2023/02/09 (167.030) Technical Analysis

Like The Rabbit On Front Of The Snake
– Ahead Of US Onflation Data, On Tuesday Next Week

Dow And Nasdaq Are Up, Disney In Focus, Mattel Under Pressure

Interest rate and economic concerns continue to weigh on the US stock exchanges. On Thursday, the most important indices had initially recovered somewhat from their previous day’s losses, but as trading progressed, investors lost courage again. Once again, a central bank representative had pointed out the need for additional interest rate hikes in the fight against high inflation. The leading index Dow Jones Industrial lost 0.73 percent to 33,699.88 points. The market-wide S&P 500 fell 0.88 percent to 4081.50 points. The tech-heavy Nasdaq 100 fell 0.91 percent to 12381.17 points.

The changeable stock market trend so far this week thus continued. Meanwhile, data from the job market showed that the number of weekly initial jobless claims was slightly higher than experts had predicted. The data is considered a timely indicator for the US job market. The Fed takes the local situation into account in its monetary policy. For the past year, it has been trying to get the high inflation under control with significant interest rate hikes. Most recently, the monetary watchdogs had reduced the pace of interest rate hikes and at the beginning of the month only decided on a small rate hike of 0.25 percentage points.

The interest rate issue has occupied investors for a long time and so also this week.
Easing fears of inflation boosted prices at times, while concerns about further increases in interest rates slowed them down. The latest data from the labor market now spoke more for falling inflationary pressure. Despite good business in the past quarter, entertainment giant Walt Disney plans to make significant cuts in its workforce. Disney’s transformation plan supports its estimates, wrote Credit Suisse analyst Douglas Mitchelson. In the first quarter of the business year, the entertainment group clearly exceeded expectations due to the strong development of the amusement parks and the streaming business. Disney shares gained 1.6 percent. The shares of the toy manufacturer Mattel were more affected by quarterly figures and forecasts with minus 10.7 percent. Here investors were disappointed by the outlook. Medical technology company Baxter’s shares fell 11.8 percent.

Conversely, investors in casino and hotel operator MGM Resorts and industry peer Wynn Resorts were both pleased with strong business numbers. The shares soared by almost eight and a good six percent respectively, putting them among the top group in the S&P 500.US Jobless Claims Rise From 9-Month LowUnited States Initial Jobless Claims

The number of Americans filing for unemployment benefits rose to 196 thousand in the week ending February 4th, from the previous week’s nine-month low of 183 thousand and above market expectations of 190 thousand. Still, the latest figure suggested the labor market remained tight, which could contribute further to inflationary pressure in the world’s largest economy. The 4-week moving average, which removes week-to-week volatility, declined to 189.25 thousand, the lowest level since last April. On a non-seasonally adjusted basis, the number of claims was up 10 thousand to 235 thousand, with the largest increases being recorded in California (7.6 thousand), Ohio (3.4 thousand) and Illinois (1.6 thousand).

DXY Falls for 3rd Session
Dollar Steadies As Traders Mull Fed Outlook
Dollar Stabilizes Ahead Of Inflation Data Next Week

The dollar weakened sharply against a basket of major currencies on Thursday, as investors shrugged off hawkish remarks on interest rates path in the US from several Fed policymakers and moved their focus to riskier assets. The dollar’s weakness was seen across the board, with some of the most pronounced selling activity against risk-sensitive currencies such as the Australian and New Zealand dollars. The dollar also depreciated against the euro after data showed euro zone business activity returned to modest growth in January.

The dollar index steadied above 103 on Thursday, remaining sideways in recent sessions as investors assessed the latest Federal Reserve commentary, where officials reaffirmed their commitment to bringing down inflation with more rate hikes. Meanwhile, Fed Chair Jerome Powell sounded less hawkish than expected earlier this week, saying the disinflationary process has started despite warning of further policy tightening 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. Fed Governor Christopher Waller said that robust jobs numbers could fuel consumer spending that would maintain upward pressure on inflation. Investors now look ahead to US inflation data due next week.

The dollar index stabilized above 103 on Friday as investors look ahead to US inflation data next week for clues about the trajectory of Federal Reserve interest rate hikes. Investors also heeded hawkish signals from Fed officials this week who reaffirmed their commitment to bring inflation down with further policy tightening, against the backdrop of robust jobs numbers. Meanwhile, investors remain cautious about escalating risks of a recession and signs of cooling inflation in the US. Fed Chair Jerome Powell said earlier this week that the disinflationary process has started, but warned of more rate increases if the jobs market remains strong. Investors now look ahead to more central bank commentary and US consumer sentiment data on Friday.Turkish Lira Holds At Record-Low
Russian Ruble Hovers Near 10-Month Low
Loonie Under Pressure as BoC Set To Pause Rate Hikes

The Turkish lira has set a fresh record low of 18.9 per USD in February, following a catastrophic earthquake in southern Turkey and Syria, as well as rising geopolitical tensions between Washington and Ankara over trade with Moscow. The US warned Turkey about the export to Russia of chemicals, microchips, and other products that could be used in the war against Ukraine. Domestically, political and monetary policy uncertainty also weighed on the market ahead of the Turkish presidential and parliamentary elections in May, as the country struggled with a deepening economic crisis and increasing inflation. Latest data showed Turkey’s annual inflation eased to 58% in January but remained above market expectations, adding to investors’ concerns. The lira has lost more than 40% against the greenback and became the second-worst performer in emerging markets in 2022, after a 77% plunge in 2021.

The Russian ruble was changing hands around $72, closing in on its lowest level since April 2022, as investors remained worried about the country’s public finances after the West imposed a price cap on Russian oil products. Oil and gas revenues amounted to RUB 426 billion in January 2023, a decline of 46% from a year earlier, primarily due to a decrease in quotations for Urals oil and a drop in natural gas exports. Still, the downside has been limited by the government’s activity on the foreign exchange market. On the policy side, Russia’s Central Bank will likely hold its key interest rate at 7.5% on Friday but give a more hawkish signal to the market amid rising inflationary pressures.

The Canadian dollar traded near $1.34, well below a 2-½-month high of $1.326 hit at the beginning of the month, as the Bank of Canada is expected to be the first major central bank to pause rate increases after delivering eight rate hikes in the past 11 months. The Bank of Canada hiked its key interest rate to 4.5% in January, the highest level in 15 years. Meanwhile, Governor Tiff Macklem said no further rate hikes would be needed if, as expected, the economy stalled and inflation fell. Also, the summary of Governing Council deliberations showed policymakers decided to hike rates in January because of labor-market tightness and stronger-than-expected growth and said a pause is needed to evaluate the effects of the actions taken so far.

US 10-Year Treasury Yield Eases Below 3.6%

The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, moved back below 3.6% as investors reassessed the Federal Reserve’s plans for rate hikes. A string of Fed policymakers reiterated that interest rates would need to keep rising to bring down inflation to its 2% target. Still, Richmond Federal Reserve president Thomas Barkin was among the latest officials to acknowledge that the US economy is slowing, allowing the central bank to move more deliberately. Investors now see the Fed raising the fed funds rate to 5%-5.25%, with the world’s most influential central bank delivering a 25 bps hike in March and May before pausing. Looking ahead, Wall Street and the Fed are again in a standoff on the future path of interest rates, with the former betting on a rate cut later this year while the latter reaffirmed its view that interest rates will stay higher for longer.

Wall Street Ends Lower on Rising Concerns

The Dow finished more than 240 points lower on Thursday, while the S&P 500 and Nasdaq 100 lost almost 0.8% and 1%, respectively, as persistent concerns about the economic outlook and higher interest rates rattled optimism about upbeat earnings reports and raised worries on companies’ future performance. Richmond Federal Reserve president Thomas Barkin was among the latest officials to acknowledge that the US economy is slowing but warned on continuing rate to ensure inflation doesn’t get entrenched. Meantime, initial jobless claims, the most timely snapshot of the labor market, came in at 196,000 for the week ended Feb. 4, an increase of 13,000 from the prior week, but still poting to a tight labor market. On the earnings side, Walt Disney lost about 1.3% amid upbeat earnings after announcing a restructuring plan that includes job cuts and cost savings. PepsiCo added 0.9% as the soda maker reported quarterly results that surprised investors on the upside.