As the markets slowly come back from holidays and volumes pick up. Last week’s economic data and earning reports in the US provided a worrying sign for the Federal Reserve. CPI data edged higher, more than expected and PPI was a little softer. As the first earnings season for the year kicked into gear the profit numbers are not stacking up and so far, many are missing expectations as tight monetary policy takes hold of the economy. On the geopolitical front, potential for supply disruptions in oil escalated as the US and Britain, held joint air and sea strikes, taking out Houthi rebel targets in Yemen in response to attacks on international shipping channels and Iran’s capture of an oil tanker of the coast of Oman.
But first last week's economic data from the US painted a mixed picture, raising eyebrows at the Federal Reserve. The Consumer Price Index (CPI) inched higher than anticipated, suggesting persistent inflationary pressures. Core inflation edged higher by 0.3% and the inflation rate MoM and YoY were both 0.2% higher than expected. The data has been trending upwards for the last three reads and its persistency means that rates will stay higher for longer. In contrast, the Producer Price Index (PPI) displayed a somewhat softer stance, indicating a potential easing in production costs which provides some comfort for the Fed. These conflicting signals pose a unique challenge for the Federal Reserve, which is already grappling with balancing economic growth and inflation control. The persistently high inflation suggests that investors will have to ease back on expectations of rate cuts. As a result, we can expect the economy and company earnings to often.
The onset of the year's first earnings season brought its own set of revelations. Corporate America, which had been riding a wave of robust earnings in the past, now confronts the realities of a tightening monetary environment. The initial batch of profit reports has been less than stellar, with a notable number of companies falling short of expectations. UnitedHealth declined about 3.6% after beating earnings expectations but reported a higher-than-expected utilization of medical services. Bank of America was down 0.8% after a profit fall and Wells Fargo declined 3% despite a profit rise. Delta Airlines sank about 8% as the airline reduced the 2024 earnings forecast. This trend underscores the impact of the Federal Reserve's stringent monetary policies, which, while aimed at curbing inflation, which are also squeezing corporate profit margins. This week we have earnings reports from major players like Morgan Stanley, Goldman Sachs, US Bancorp, Charles Schwab, PNC, and ProLogis will add to the economic landscape.
On the geopolitical front, tensions are escalating, particularly concerning global oil supply. The recent joint air and sea strikes by the US and Britain against Houthi rebel targets in Yemen mark a significant development. These strikes, a direct response to the rebels' assaults on international shipping lanes and Iran's seizure of an oil tanker off the coast of Oman, have heightened concerns over potential disruptions in oil supply. The strategic importance of these shipping channels cannot be overstated, as they are vital arteries for global oil trade. The instability in this region could have far-reaching implications, not just for oil prices but also for the broader global economy. Oil traded 1% higher on Friday and with the expansion of the conflict in the Middle East expect to see more support for the commodity in the coming trading sessions.
As we delve deeper into these topics, the interconnectedness of economic indicators, corporate health, and geopolitical stability becomes increasingly evident. Each element plays a crucial role in shaping the global financial landscape, influencing investment decisions and market sentiments. The coming weeks will be crucial in providing further clarity and direction, as more economic data is released, and earnings reports continue to unfold.
On the economic front it’s a big week especially in China as NBS reports on the state of the economy. Wednesday sees GDP Growth Rate where we are expecting a 0.4% bounce however an easing in Industrial production from 6.6% to 6.3%. We also have employment data. In the US we also get a good read on the state of the economy with Retail Sales, Industrial and Manufacturing production. The key forecasts are not that encouraging with expected weaker prints across the board. Closer to home we have Employment Data although the reads are expected to remain steady the employment change of +61,500 is expected to give it a positive spin to the Australian economy..
On the position front, we are happy to hold onto … in Dow (37,660), Nasdaq (16,822), and SPI (Average 7564). In the currencies … the AUD/USD (US0.6770) and AUS/CHF (0.5707) with … in the AUD/USD. Commodities, … and in bullion market … Silver (US23.19) with a … in Gold (US2046).
Trade Focus:
Fundamentals:
US Equities: In trading it is often the case you get the trade correct after you have been stopped out. It’s all about timing and sometime …
Technical Analysis:
From a technical perspective the momentum indicators remain …
Support …
Resistance …
Momentum …
