Political jostling occurring between Harris and Trump is contributing to some volatility in the equity markets. The Democrats seem to have the jump on Trump, but in all honesty, Harris would have to be the preferred candidate to be the next President of the US. US equity markets plunged under the weight of poor Non-Farm Payroll data and negative corporate earnings from the IT sector, and early trading today remains weak.  Last week, the FOMC kept rates at a 23-year high between 5.25-5.50%, which was in line with expectations. It was noted again that reducing rates would not be appropriate until the Federal Reserve(Fed) gained greater confidence that inflation was moving towards 2%. There remains a delicate balance between productivity and keeping monetary policy high that the market needs to absorb, and so far, the market is looking at it negatively.  Also contributing to the weakness in equities is the tightening of monetary policy in Japan; as of writing this report, the Nikkei is down 6.25% as the BoJ last week at is July meeting raised rates to 0.25%. Although it builds on the increase of 0.1% in March, the rate has been below 0.25% since February 2009 and at or below 0.5% since October 1995. It is a significant move by the BoJ as it finally looks to retreat from the bond market and tries to normalise monetary policy.  In Australia, we have the RBA bank board meeting on Tuesday, where the governor looks to decide on interest rate policy. The market is looking for a no change in policy and hoping the wording would be more conducive to rates having peaked. Although last week's data was positive, this week's TD Inflation M1 Gauge MoM was up 0.4%, a worrying sign for the RBA. 

But first, let's dive deeper into the US presidential campaign. Ever since Biden, the first sitting president not to stand for re-election since 1968, stood aside, money flow has swung to Harris.  It's been a dramatic turnaround, and many suggest that she can re-set the Democratic messaging mandate for the future. The Polls are mixed, and many are starting to show a small margin for Harris over Trump. Interestingly, a July 23 Reuters/Ipsos poll showed Harris leading Trump 44% to 42% in a head-to-head matchup. However, when it came to mental sharpness and ability to deal with challenges, they had Harris at 56%.  Our preferred position is for Harris to be in the White House; however, a measure to contend with, which is a concern, is the degree of misogyny that seems to remain an elevated burden for voters in the US. We have 96 days to go before the 5th November voting, so it will be interesting to see how it swings. At least we know how the equity markets are viewing things. 

US Equity markets have been under pressure for the last few trading sessions. Being short has been a preferred position. Last week's FOMC meeting kept rates at 5.25% - 5.50% for the 8th consecutive meeting. The Fed noted that although there has been some further progress toward the 2% inflation goal, it remains elevated. Also, recent economic indicators suggest that economic activity has continued to expand steadily. Although job gains have moderated, and the unemployment rate has increased, the growth rates remain positive. Further, the central bank judges that the risks to achieving its employment and inflation goals continue to move into better balance. However, the Fed does not expect it will be appropriate to reduce rates until it has gained greater confidence that inflation is moving sustainably toward 2%. Chair Powell said a September cut could be on the table if inflation moves down in line with expectations and that he could imagine scenarios in which the Fed could cut rates several times this year or not at all. Nothing like sitting on the fence. US Non-Farm Payrolls came in worse than expected, +114,000 v 175,000 expected, as new hires are starting to feel the pain of tightened monetary policy. It is also the lowest level in three months, and below the average monthly gain of 215K over the prior 12 months, signalling the labour market is, in fact, cooling off.  Jobless claims added further weight to the slowing economy and continued to rise.  Not to mention, PMI data which showed the economy cooled the most in eight months. Other signs that the economy is cooling is also coming from the corporate sector in the USA.

We are just about to finish this quarter's reporting season; Apple and Amazon numbers failed to impress the market. Although Apple's numbers surpassed expectations and the company returned to growth, the market was concerned about the loss of market share in China. Apple dropped out of the top five smartphone sellers in China, which did put a dampener on forward expectations. Amazon's second-quarter revenue numbers missed expectations due to weak online sales after the market announced its quarterly results. Sales only increased by 5% against 7% from the first quiet. It seems like Apple is impacted by Chinese rivals, in this case, revivals such as Temu and Shein, a worrying trend that the market has picked up on. 

In Australia, Tuesday we see what the RBA is thinking concerning monetary policy. The Reserve Bank of Australia retained its cash rate at 4.35% during its June meeting, somehow we feel the RBA doesn’t want to lift rates however it will be guided by the numbers. That said, the central bank cautioned again that inflation was still above the midpoint of the 2–3% target range, largely due to the persistently high cost of services. The board continued to view that it was not ruling anything in or out as it will rely upon data. The RBA has mentioned a few times that rates may edge higher and that like most central banaks they will be focused on the containment of inflation. The Melbourne Institute's Monthly Inflation Gauge out today rose by 0.4% in July 2024, after a 0.3% gain in the previous two months. It was the fifth straight month of increase and the steepest figure since last December a worrying sign for the RBA.

What can we expect this week? It will be a relatively quiet week in the United States, with only the ISM Services PMI and the trade balance report of significance. Additionally, the earnings season for big companies is slowly wrapping up, featuring results from Amgen, Caterpillar, Uber, Airbnb, Walt Disney, Eli Lilly, SoftBank, and Siemens.

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Trade Focus:

USDJPY

Fundamentals:

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Technical Analysis:

It’s been a good week for technical trading in Yen as well. The fundamentals have helped, but the technicals have enabled us to add to positions and place stop ... Since the peak of US … 

Support              …

Resistance         …

Momentum        …