The price of the US Dollar has been increasing in value for the past two weeks due to members of the Federal Reserve indicating another hike, which markets were not expecting. However, the Chairmen of the Federal Reserve throw tossed some doubt into traders' minds. The question of which traders are now asking is if the market will bite the bait. This morning, the US Dollar Index is slightly higher, and the decline seen on Friday has only formed a retracement. Traders will be looking to see if the index declines below 103.00 or breaks above 103.58.
Fed Chairman Speech
On Friday, the chairman of the Federal Reserve, Jerome Powell, told journalists the monetary policy “may not need to rise as much as” investors may be anticipating. So the chairman continues to point towards a pause in the policy, as he has in the past. However, he also states, “the extent of that is highly uncertain”. Mr. Powell was happy to confirm investor sentiment has slightly improved after the bank liquidity issues. Additionally, the chairman confirms he believes the “tighter credit conditions” will contribute to lower economic growth, less hiring and lower inflation”.
Most economists still believe the Fed will opt to pause in next month’s Fund Rate decision. However, around 30-40% think they will hike a further 0.25%. On the other hand, analysts are expecting the ECB to hike interest rates by another 0.25%. As interest rates around the globe may continue to rise potentially, the price of Gold has come under pressure. Last week, the price of Gold declined to a 6-week low.
DAX Achieves All-Time High
Moving away from currencies and the global monetary policy stage, the equity market, including stocks and indices, rises again. Many investors have their eyes fixed on the German DAX, which rose to an all-time high on Friday! So far this year, the German DAX has increased by almost 16% and recovered losses from 2022. However, Bloomberg this morning is pointing out that the number of “shorts” is now at its highest level since the stock market crash in 2007.
One of the main drivers this year has been the reopening of China, which is essential for the German economy. However, more recent price drivers have been tech giant Siemens AG releasing their quarterly earnings report. The company records a revenue of €19.42 billion, which is well above the €18.07 shown in the previous quarter, and the €18.75 billion forecast by analysts. Earnings per share were a record 4.35 euros, much higher than previous figures. Traders should also note the company is higher ranked on the price weight table for the DAX.
NASDAQ - Equities Face highest "Short" since 2007
Unlike the DAX, the NASDAQ’s price declined by 0.69% and also opened on a negative price gap. Nonetheless, the price is still significantly higher than prices seen between the 15th to 18th of May and is still following an Elliot-style wave pattern. The asset has been following a bullish trend pattern throughout May, increasing for six consecutive weeks. The price is driven by the possibility of a pause in the monetary policy, while a soft landing seems more likely. In addition, earnings from the technology market, including from Apple, Meta and Microsoft, were better than markets were expecting.
The issue for the NASDAQ is that the price will soon lose the influence of the earnings season as we approach the end. NVIDIA, the 4th most influential company within the index, will release its quarterly report on Wednesday after the market close. Over the past five days, the price of NVIDIA stocks has increased by almost 10%. If the earnings per share come in more than $0.92 and revenue above $6.52 billion, the stock may experience a further surge in buyers. NASDAQ traders will deem NVIDIA earnings as crucial.
In addition to this, this week’s Prelim Gross Domestic Product and Core PCE Price Index will influence the pricing of the asset. Traders hope these economic releases, especially the PCE Price Index, will further indicate how the Fed will alter interest rates next month. Investors are concerned that the Federal Open Market Committee will opt to hike another 0.25%, which will pressure equities. In addition to this, traders are also cautious about the high volume of short positions. According to the latest reports, the number of short positions are now equal to that seen during the 2007 banking crisis.
Summary:
- Jerome Powell, tells journalists the monetary policy “may not need to rise as much as” investors may be anticipating.
- Analysts expect the ECB to hike interest rates by another 0.25%, while split on how the Fed may proceed.
- The German DAX rises to an all-time high after tech giant Siemens AG releases their latest earnings.
- According to Bloomberg, the number of short positions are now equal to that seen during the 2007 banking crisis.
