Powell Speech in Focus as Stocks Rally on Weak Data

US stocks rebound as economic data paints a grim picture for the global economy while earnings support sentiment. Regarding earnings data, investors are concentrating on NVIDIA, which smashed through Wall Street’s earnings expectations. Why are investors buying while data points towards a recession? The poor economic data from the US, UK and Europe indicates that the global central banks may consider keeping interest rates unchanged. Some economists have also advised that if inflation declines slightly and economic data deteriorates, central bankers may also consider an earlier pivot. A potential monetary policy pause or a possible earlier pivot is known to support the stock market. 

This morning’s intraday futures in Europe are green after yesterday’s economic data. The DAX Futures are 0.72% higher, the FTSE100 0.65% higher, and the CAC40 Futures are leading, adding 0.81%. Additionally, US equities are higher this morning, with the NASDAQ leading as the global best-performing index. Economists advise investors to take advantage of the discounted price which provides a better entry. Additionally, investors look to take advantage of the positive earnings we have experienced over the past 4-weeks. However, economists also advise that the positive price movement can only be maintained if inflation data points lower. If inflation data increases or remains unchanged again, bankers may push towards more extreme measures. For example, another 0.25% interest rate hike. This would lower demand for stocks due to lower consumer demand and higher returns throughout other markets. 

NASDAQ - Powell Speech in Focus as Stocks Rally on Weak Data

The NASDAQ rose by 2.53% during yesterday’s trading session and 3.03% over the past 24 hours. This marks the fourth consecutive day of climbs for the NASDAQ, the index saw nine of its top ten influential stocks rise during yesterday’s session. The best-performing index was NVIDIA, growing more than 6% after the market close, and the worst-performing stock was Sirius CM Holdings, declining by 2.42%. However, investors are not concerned about the company’s decline as it only holds a weight of 0.14%.

Analysts were expecting NVIDIA earnings to increase over the past quarter significantly. However, the company continues to outperform. NVIDIA’s Earnings per Share read $2.70 against expectations of $2.14, and revenue read $13.51 billion vs. $11.22 expectations. Investors again bought more shares as earnings read 26% higher and revenue 20% higher than expectations. In addition to this, the stock market was also supported by the bond market which finally retreated after climbing for consecutively for a month. The US 10-Year Treasury fell from 4.3280% to 4.1840%.

As also mentioned above, poor Purchasing Managers’ data supported the global stock market. In the US, the Services PMI fell more than expected, from 49.0 to 47.0, and the Manufacturing PMI fell from 52.3 to 51.0. Investors will now turn to today’s and tomorrow’s FOMC speeches specifically the speech from Fed Chairmen Jerome Powell. Investors are keen to hear if the Central Banks are still leaning towards more rate hikes.

NASDAQ 4-Hour Chart on August 24th

Regarding technical analysis, indicators indicate bullish price movement on all timeframes except the 1-Minute and 5-Minute Charts. However, price action is at the neutral level as the price patterns indicate the price may form a retracement before continuing the upward trend. Over the past 48 hours, the price has been trading above the Volume-Weighted Average Price, which shows that buyers mainly control the market. If the price drops below the VWAP but buy orders remain relatively high, traders may find an opportunity to purchase. The only concern for traders is if the FOMC provides hawkish indications over the next 24 hours and if the price struggles at the current resistance level. 

EUR/USD 

Traders struggled to accurately price the EUR/USD after the US announced similar economic data to the EU. Currently, PMI data for both regions indicates zero movement on the monetary policy. However, economists continue to point toward the US Dollar remaining in control in the foreseeable future. The price initially saw a significant decline, measuring 0.63%. However, the price was fully corrected after the US PMI release. 

This morning's price is declining again but is yet to cross below the previous support levels. A key driver for the Dollar will be if the Jackson Hole Symposium produces hawkish comments for the next two Federal Reserve Meetings. Yesterday’s US real estate data confirm resilience despite the Fed's tightening of the monetary policy. Richmond Federal Reserve Bank President, Mr. Barkin, said the regulator should be prepared for the fact that the economy will stop slowing down and inflation in this case, will remain high. However, do the remaining committee members also share the need for restrictive rhetoric? 

The US Dollar index this morning is trading slightly higher at 103.50 (+0.08%). However, investors should note that the Euro is also trading higher against all currencies this morning except against the Dollar. Investors should be cautious that the Euro does not continue to gain momentum as this potentially can also pressure the Dollar.

EUR/USD 1-Hour Chart on August 24th 

Summary:

• US stocks rebound as economic data paints a grim picture for the global economy while earnings support sentiment.
• NVIDIA’s EPS was $2.70, and revenue was $13.51 billion. Investors again bought more shares as earnings read 26% higher and revenue 20% higher than expectations. 
• The US Services PMI fell more than expected, from 49.0 to 47.0, and the Manufacturing PMI fell from 52.3 to 51.0.
• The stock market was also supported by the bond market, which finally retreated after climbing consecutively for a month. The US 10-Year Treasury fell from 4.3280% to 4.1840%.
• Investors will now turn to the Forward Guidance tomorrow from the Federal Open Market Committee and Fed Chairman.