The NASDAQ 100 traded to a record high at the close of Fridays trading, in the process helped securing gains for other US equity markets. In early trading Monday, US Futures markets for the Dow and S+P 500 also took out new highs. As the records continue to tumble concern mount as to PE’s and valuations for the leaders in the Nasdaq as they stretch out to bubble levels. This week sees more company earnings namely with Netflix and Tesla to report. Netflix has rallied 30% in the last quarter so once again with investors expecting good things. Tesla, the markets remain nervous as to competition in the EV space eroding Tesla’s share. The USD has found near term support as overseas investors scramble back into the equity markets on fears of missing out (FOMO). The Natural Gas market has plummeted on softening forecasts for an easing in storm activity in the US and ongoing fears of supply disruptions in the US Oil markets helping to support prices. This week we have a good Economic data to help consolidate these equity gains or not!
But first, earnings season is in full swing in the US, the majority of reports have been supportive particularly from stocks in the tech heavy Nasdaq. Notable tech giants like Netflix and Tesla are set to report their quarterly results this week. Netflix, which has seen a remarkable 30% rally in the last quarter, is once again under scrutiny from investors who are anticipating strong earnings. Meanwhile, Tesla's performance is being closely watched, with concerns lingering about increasing competition in the electric vehicle (EV) space potentially eroding its market share. Focus will be on its sales figures, production capacity, and progress in expanding its global footprint. However, as records continue to be shattered, concerns have arisen about the stretched valuations and elevated PE ratios of the leading companies within the NASDAQ. Next week we see Microsoft, Alphabet and Apply report with Meta on the 1st Feb. The tech sector's valuations have reached historically high levels in 2023, the Magnificent Seven stocks surged between 48% and 239%, accounting some 60% of last year's 24% total return for the S&P 500. This is prompting discussions about the possibility of a tech bubble reminiscent of the dot-com bubble of the late 1990s. We have been monitoring the valuations and although we cannot justify the valuations, like any bull market with such a fever it is best not to stand in front of it. As the fear of missing out engulfs the market the USD has also found renewed support.
The USD has managed some good gains over the last few weeks. US Capital Inflows have reached a 15-month high which has been supporting the USD. As the global macro picture remains mixed the appeal of US assets due to its stable political institutions, a deep and liquid financial market, and a diverse range of investment opportunities has seen investors flock to the US. Additionally, the strengthening of the US dollar has also played a pivotal role in attracting foreign investment. A robust dollar makes US assets more appealing to international investors, potentially driving up their prices. Whilst nothing so far has rocked this confidence, we can only assume that this trend will continue for the time being. The strength of the USD on the other hand is also dampening expectations in some of our commodity markets.
Although, the strength of the USD is helping to reduce volatility in the energy market, for oil OPEC expressed concerns regarding potential disruptions in US oil output. North Dakota oil production was down 30% or some 700,000 barrels due to a cold blast, adding an additional layer of complexity to the oil market dynamics. These concerns are twofold. Firstly, OPEC is wary of US production disruptions, which could reduce global oil supplies. Secondly, geopolitical risks in key oil-producing regions, such as the Middle East, contribute to uncertainties surrounding oil production and distribution. The IEA in its weekly forecasts has lifted prospects for demand of the commodity but said that it felt the commodity was in good supply. Further news that the Chines equity markets dropping to a five year low on weaker demand has contributed to the softness in demand and echoes the IEAs sentiments. The US Natural Gas (NG) market has plummeted not only to a strong dollar but due to dampened demand caused by an easing of the storm activity and a long market which is helping to ease energy inflation prospects which can only be seen as a good sign.
On the economic front last week concluded for many that the state of the US economy was not as bad as what we thought, Industrial Production +1% v -0.1%; Manufacturing Production +1.2% v -0.1% and with new Home Starts and Building Permits all coming in above forecasts. Although, we hold our concerns, when you compare the state of the US economy against its peers the outlook for the US simple stacks up better. This week we expect a mixed picture of economic news as the traders focus on a prospects of positive company earnings, a robust lift in economic activity against a backdrop of price pressures to the upside.
On the position front, we have been stopped out of short positions in Dow and Nasdaq and for the time being have stepped aside waiting for more direction. For the SPI (Average 7564) we ... In the currencies still … AUD/USD and AUS/CHF with … position in the AUD/USD. Commodities, Silver … in Gold …
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From a technical perspective we see this as a short-term trade. Like the US breaking out we see Australia ....
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