Global stocks, including the NASDAQ, decline as employment data pressures the Fed’s fight against inflation. In addition, earnings fail to impress investors and tech stocks experience a strong selloff. Investors will remain focused on the technology market throughout the next 24 hours, mainly due to the upcoming earnings data. However, in addition to this, investors will be monitoring if strong employment data and higher fuel prices will push the Fed to hike another 0.25%. An additional rate hike will pressure the NASDAQ and Tech companies more than other indices, such as the Dow Jones.
Furthermore, investor sentiment took a considerable hit due to the Fitch downgrading of the US from the AAA grade to AA+. According to economists, the downgrade does not physically change much but affects sentiment. The lower sentiment could be seen amongst equity markets, pushing the US Dollar higher. The US Dollar Index is trading at 102.70, almost at a 1-month-high. This morning, the US Dollar is increasing in value against all major currencies, including the Pound and the Swiss Franc. The currency experiencing the weakest price movement is the Pound.
GBP/USD - BoE Rate Hike Looms
The exchange rate's price is driven by both currencies and not solely by the Dollar. The US Dollar generally appreciates across the market, but the Pound is also struggling against most currencies over the past 24 hours. For example, the Pound this morning is depreciating against the Euro, Yen and Swiss Franc. However, it should be noted that the currency will be influenced primarily by the Bank of England’s decision, MPC votes and forward guidance.
Economists expect the Bank of England to increase interest rates for the 14th consecutive time. The BoE’s decision will bring the base rate to 5.25%, competing with their US competitors and outcompeting their EU partners. However, the currency is poorly performing as the country is at a higher risk of a recession, and this risk is now likely to increase as a rate hike. According to Bloomberg’s latest survey, most analysts believe the BoE will hike 0.25%, with a minority expecting 0.50%.
However, economist Kristine Aquino advises it is a lose-lose scenario for the Pound. This is because 0.25% is already priced into the market, whereas 0.50% would significantly lower sentiment while inflation is so high and economic growth is static. Furthermore, investors will also be scrutinizing comments made by the Bank of England governor regarding the future path of the monetary policy. Hawkish comments can potentially support the Pound. In addition, the votes made by the Monetary Policy Committee will also influence the exchange rate. Currently, two members are expected to vote to keep the rate unchanged. However, if more members vote to keep the rate unchanged, investors will deem this dovishness.
However, it is essential that investors also continue to monitor the price action and technical methods. Price action indicates a clear downward trend, with momentum gaining as we approach the European Cash Market Open. The exchange rate is forming its fourth bearish candlestick on the daily timeframe. The RSI indicates sellers have control of the market, and Moving averages are also crossed over downwards. Further bearish signals will likely materialise if the price declines below 1.26787. However, traders should be cautious of retracements at breakout levels and the resistance level at 1.25841.
NASDAQ and Weak Tech Earnings
The NASDAQ is experiencing a decline during this morning’s futures market, continuing the bearish trend from the day before. The decline did not surprise investors, as explained in the market analysis blog from yesterday morning. Over the past 24 hours, the index has been pressured by the low investor sentiment and poor performance from the most influential stocks within the index. For example, Apple, the stock with the highest weight, experienced negative order flow throughout the trading day. As a result, the stock declined by almost 2% before the price retraced.
Investors had concentrated their evaluation on Apple due to the negative order flow, such as Delta statistics and upcoming earnings reports. Analysts expect Apple’s earnings per share to decline from $1.43 to $1.19. In addition, the expectation is that revenue will decline from $92.84 billion to $82 billion. If the data read lower than the market’s expectations, the index and the individual stock will likely decline.
However, investors should note that Apple stocks are not the only component to decline over the past 24 hours. Only seven held their value from the top 30 influential components within the index, while the remaining 23 declined. Chipmakers are experiencing the most significant decline. For example, NVIDIA declined by 4.75% and AMD by 6.61%. Certain declines amongst the most influential stocks also relate to their earnings report. Qualcomm, the 20th most influential stock, released its earnings report yesterday. Company revenue was 0.80% lower than expectations. As a result, the stock saw a significant decline, as did the NASDAQ.
Summary:
- Global stocks decline as employment data pressures the Fed’s fight against inflation. Global stocks decline and the US Dollar pouches higher.
- The US Dollar Index is trading at 102.70, almost at a 1-month-high. This morning, the US Dollar is increasing in value against all major currencies, including the Pound and the Swiss Franc.
- Investors have their eyes fixed on the Bank of England’s rate decisions, votes and press conferences.
- NASDAQ has declined by 2.63% over the past 24 hours due to low sentiment and poor earnings data.
