Heading into another big week of important company and economic announcements should help to decide the state of the US economy and the Federal Reserve’s thinking towards interest policy. Tuesday sees Alphabet and Microsoft, and then Thursday FOMC meet, and we see earnings reports from Amazon and Apple on 4th quarter earnings. Company earnings reports are all expect to show resilience to any potential slowdown in economic activity in the US, hence why US equity markets are on record highs. In the Middle East, Israeli PM, Netanyahu has been asked to resign on his handling of the conflict as it spills out into other regions and the US and UK have been involved in conflicts in the Red Sea against Iran backed Houthi rebels. Oil is trading at highs not seen since the end of November on supply concerns caused by an escalation of the conflict. A concern that may promote energy inflation and delay prospects of interest rate relief until the end of the year. Over to China we continue to see weaker economic numbers and on Wednesday the important NBS Manufacturing PMI are due albeit Steel is on a 4-week high and Iron Ore just off highs not seen since Jun 2022. Closer to home the ABS delivers local Inflation data which is expected to show the RBA is winning the war on price pressures.
But first on Tuesday, Alphabet and Microsoft are set to release their earnings reports. These technology stalwarts have been at the forefront of innovation and growth in the digital economy and in some cases have been carrying the valuations for equities. The market anticipates strong financial results as they capitalize on consumer behavior and transformation trends. Analysts, on average, expect Alphabet to disclose earnings of $1.59 per share, up 51.4% year-over-year (YoY), on revenue of $85.3 billion (+12.2% YoY). Earnings for Microsoft are anticipated at $2.78 per share (+20.3% YoY), on revenue of $61.1 billion (+15.9% YoY) with Amazon and Apple not as impressive but still positive and will help support the market. It's tricky working out what the market will do and normally that market factors in better results so expect a buy the rumor and sell the fact scenario to unfold. No doubt the Federal Reserve will be keenly monitoring events as the Board Members debate monetary policy.
The Federal Open Market Committee (FOMC) meeting scheduled for Thursday is a pivotal event. It provides an opportunity for the Federal Reserve to communicate its stance on monetary policy, including interest rates. The Fed's approach to managing inflation and supporting economic recovery will be closely scrutinized, as it has significant implications for financial markets and investors. The Fed Funds rate stands at 5.5% and with the market is expecting 75bpds easing in rates in 2024. Key indicators suggest that economic growth has slowed, and job gains have moderated but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated with remains a concern. Given the possibility of an expansion in the conflict in the Middle East the Federal will keep an eye on energy inflation which may see prospects of expected easing retracted. A concern for equity valuations.
Geopolitical developments in the Middle East have been a source of concern for global markets. The request for Israeli Prime Minister Netanyahu to resign amid criticism of his handling of the conflict, coupled with regional tensions involving the US and UK against Iran-backed Houthi rebels in the Red Sea, have heightened instability in the region. Further, refined output from Russia have declined due to drone attacks is exacerbating the problem. These conflicts have implications for oil supply and have pushed oil prices to their highest levels since November, raising concerns about potential energy inflation and its impact on interest rate policies. Against these supply concerns are weakened data points coming out of China.
China's economic data continues to draw attention. The release of the National Bureau of Statistics (NBS) Manufacturing Purchasing Managers' Index (PMI) on Wednesday is crucial. Weaker economic numbers in China can signal potential headwinds for global economic growth, affecting supply chains and international trade. However, positive trends in steel and iron ore indicate pockets of strength within the Chinese economy as the chances for more stimulus programs promote demand.
Closer to home, the Australian Bureau of Statistics (ABS) is expected to release local inflation data. This data is closely monitored, as it offers insights into whether the Reserve Bank of Australia (RBA) is successfully managing price pressures. Effective control of inflation is a key consideration for central banks when making monetary policy decisions, including interest rates. The inflation rate YoY is expected at 4.3% which is drastically lower than the 5.4% read last month.
In summary, the upcoming week is poised to provide critical insights into various facets of the global economy and financial markets. Earnings reports from tech giants, the Federal Reserve's monetary policy guidance, geopolitical tensions in the Middle East impacting oil prices, China's economic trends, and Australia's inflation data are all factors that investors and analysts will be closely monitoring. These developments will shape market sentiment and influence decisions in an environment where economic resilience, inflation management, and interest rate policies remain central concerns.
On the position front, we have … on the Nasdaq (17,509) and for the time being have stepped aside trading the Dow waiting for more direction. Hopefully this week will provide it. For the SPI we have had a mixed bag of trading however, ended up with …. In the currencies … both the AUD/USD (US0.6770) and AUS/CHF (0.5707). Commodities, in bullion market… Silver (US23.19) with … in Gold (US2046).
Trade Focus:
Fundamentals:
Oil: …
Technical Analysis:
From a technical perspective last week Oil broke out of a consolidation (see chart), and if …
Support …
Resistance …
Momentum …
