Global stocks decline, and shareholders lose previous gains as we approach significant economic releases. As per analyst’s expectations and noted in NAGA’s daily market analysis blog, the price of global stocks fell. The Dow Jones was the only index that attempted to hold onto its value. The NASDAQ saw the most significant decline, falling almost 1%, while the DAX fell 0.78%. The decline largely resulted from shareholders' unwillingness to hold onto shares as inflation data edges closer, particularly after significant gains on Monday.
The news for the stock market does not necessarily improve this morning. The UK releases its latest Gross Domestic Product for the month of August. The GDP for August read -0.5%, a stronger contraction than previous expectations. Analysts previously were expecting the GDP to read -0.2%, but the UK economy continues to disappoint. However, inflation is on the rise in most regions, including the US. This puts the Federal Reserve in a difficult position to tackle inflation or support the economy. The Federal Open Market Committee has previously stated inflation will be their main target.
Another concern for investors is the price of commodities, particularly Crude and Brent Oil, continues to rise. The price of Crude Oil is now trading at a new high for 2023 and rose a further 1.70%. Investors fear that higher oil prices will keep inflation higher for longer, resulting in more interest rate hikes. As a result, most economists believe a recession will be inevitable, specifically in certain regions such as Germany and the UK. This morning, the European Central Bank said they do not believe EU inflation will fall below 3% in 2024.
NASDAQ - Shareholders Focusing on Inflation Reading
The price of the NASDAQ fully corrected previous gains seen on Monday. This indicates previous buyers were not willing to hold onto trades. The price during this morning’s Asian session is trading slightly lower than the market open but is witnessing impulse waves in both directions. The Asian stock market, which will soon draw to an end, is trading 0.67% lower, and EU stocks are trading 0.44% lower than the market open. Here, the investor sentiment is lower and mainly indicates a “risk off” appetite. However, traders should be cautious that investors do not increase their shareholding in US equities.
This will depend on today’s Consumer Price Index (15:15 GMT+3). Analysts expect the CPI to read 0.6%, the highest since July 2022 and three times higher than in August. If the index reads 0.6% or higher, the NASDAQ will likely significantly decline. The decline could fall to the previous support level at $15,150, which would measure a drop of a further 1.20%. However, if the inflation reading is less than 0.6%, the price may further to previous highs. The size and momentum of the bullish trend will be much lower than the reading is compared to expectations.
A concern for investors is Apple stocks, the most influential stock within the NASDAQ and holds a weight of more than 11%. Apple stocks fell more than 1.70% as the company released four new iPhones and also announced they would increase the price of their product. However, shareholders are concerned about China's recent stance against the company. China is Apple’s second-largest market, but it has declined over the past year. During yesterday’s trading session, only 19% of the index held onto gains. However, shareholders are concerned none of these include the top ten influential stocks, which all declined.
Technical analysis is currently indicating the price will either continue its downward trend or continue within the current established price range. If the price declines below $15,280, sell signals are likely to materialise from the VWAP as well as from crossovers. Investors should also be cautious of “false breakouts,” which have already appeared this morning. Technical and fundamental analysts agree today’s price movement will depend on inflation data.
EUR/USD
This morning, the EUR/USD price is declining by 0.15%, and the US Dollar is increasing in value against all currencies. The Euro, on the other hand, is experiencing mixed price movement and only seeing solid gains against the Pound. The more expensive US Dollar is also a negative factor for the NASDAQ and US stocks. Similar to the NASDAQ, the US Dollar will be dependent on the Consumer Price Index release. If inflation reads higher, the US Dollar is likely to rise as interest rate hike possibilities will increase.
In addition, the exchange rate will also be influenced by tomorrow’s rate decision from the European Central Bank. The ECB’s Main Refinancing Rate is expected to remain unchanged, however, some economists believe a hike is possible. This is also something which members of the monetary policy committee have previously voiced. However, if the ECB decides not to increase interest rates, investors will want to know if they are likely to the following month. If the ECB gives hawkish guidance for 2023, the Euro can rise. In addition to this, investors will also be monitoring the US Producer Price Index and Retail Sales.
Summary:
- Global stocks decline as investors await for the confirmation from this afternoon’s US inflation data.
- The UK Gross Domestic Product for August read -0.5%, a stronger contraction than previous expectations. Analysts previously were expecting the GDP to read -0.2%, but the UK economy continues to disappoint.
- This morning, the European Central Bank said they do not believe EU inflation will fall below 3% in 2024.
- A concern for investors is Apple stocks which fell more than 1.70% as the company released four new iPhones and announced they would increase the price of their product.
- The ECB’s Main Refinancing Rate is expected to remain unchanged. However, some economists believe a hike is possible.
