Yesterday’s primary winner from the latest PMI reports was the Pound which saw its strongest price movement this month. The Pound closed the day 0.62% higher than the market open price but increased by 1.18% after the data was available. The US PMI figures were also positive and managed to edge above 50.0, the main psychological level for traders. However, the EU saw mixed data from the latest PMI figures.
The Euro mainly experienced declines during yesterday's trading session and managed only to gain against the Japanese Yen, which declined against all competitors. The US Dollar, on the other hand, saw mixed price movements and high volatility throughout both trading sessions. However, other US-based assets, such as the SNP500, experienced significant declines.
SNP500
The SNP500 experienced its strongest selloff since mid-December as investors came to accept the reality of higher interest rates. As mentioned throughout the past 2-week, economists and members of the FOMC have speculated that the Fed’s terminal rate may increase as high as 6%. In addition, the FOMC continues to advise rates will remain higher for longer and most likely will not decline until early 2024.
Higher interest rates are known to lower the demand for the stock market mainly because it increases the cost of living. As a result, consumers spend less and invest less, which causes a decline in demand. Due to the above, the price negatively reacted throughout the day, declining by 1.71% and dropping to the lowest price since January 31st, 2023.
Technical analysis also points toward further downward price movement. The SNP500 trades below all major moving averages, and moving averages have also crossed downwards on smaller time frames. The stochastic oscillator and RSI are also trading below 50.0, indicating the price is being driven by sellers. However, the price is trading slightly above the previous support levels. Therefore investors will also be monitoring if the price does not find support at this level.
The release of further earning reports from Walmart and Home Depot also pressures the price. The price of Home Depot stocks declined by more than 7% due to their earnings report showing a lower-than-expected sales figure. Investors also reacted cautiously to Walmart’s statements on lower consumer demand for unnecessary items.
Yesterday, Federal Reserve’s Open Market Committee also made hawkish comments regarding March’s interest rate decision. Ms. Mester and Mr. Bullard both advised they support higher interest rate hikes in response to higher-than-expected levels of consumer inflation, producer inflation, employment, and PMI reports. Yesterday, the US Services PMI increased from 47.3 to 50.5, and the Manufacturing PMI rose from 46.9 to 47.8.
Investors will now turn their attention to today’s Federal Meeting Minutes, which will be released towards the end of today’s US trading session. The report will contain comments and insights from the previous meeting. Investors are hoping for further indications on how the Fed will likely proceed to the next rate meeting. Many economists now expect a 50 basis point rate hike and the federal fund rate to hit 6% in spring before the Fed stops hiking. Before the latest economic data, investors believed the Fed would hike 25 basis points and halt further increases.
NASDAQ
The NASDAQ, the best-performing US index so far this year, is experiencing the largest decline. The price of NASDAQ declined by 2.40% throughout the day and declined during this morning’s Asian session. The NASDAQ is known to be more harshly affected by a drop in investor sentiment. However, the index is still the best-performing index for 2023 so far.
The same factors pressuring the SNP500 are also influencing the NASDAQ. However, earning reports from technology companies will also affect the price. For example, Nvidia will release its earnings report after today’s market close. Nvidia’s earnings per share are expected to be slightly under $0.50.
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Summary:
- The Pound closed the day 0.62% higher than the market open price but increased by 1.18% in the hours after PMI data was released.
- The SNP500 declines by 1.71% as investors come to terms with higher interest rate increases.
- Economists advise that interest rates may increase to 6%.
- The NASDAQ sees the strongest decline amongst US indices. After today's market close, NASDAQ traders focus on Nvidia’s earning report.
