The stock market has fallen for three consecutive weeks, and news for the global economy continues to worsen on Monday. This morning, the Chinese Central Bank cut their one-year prime rate from 3.55% to 3.45%, which is significantly lower than analysts were expecting. The Central Bank unexpectedly also kept the five-year prime rate at 4.2%. Originally, markets were expecting the five-year to decline to 4.05%. The move from the Chinese Central Bank has resulted in poor price movement in Chinese and Hong Kong stocks, but can also mean continued pressure on the world's second-largest economy.
This morning, US equities are trading lower during the Future market, while EU stocks remain unchanged. Investors will closely monitor how the instruments react after the poor performance earlier this morning in Asia. The Hang Seng is trading 1.97% lower this morning. Analysts are advising another interest rate hike by the European Central Bank and Federal Reserve could result in the stock market experiencing a further decline of 4% as the economy would share close to an ultra-restrictive monetary policy. However, in the short term, investors will monitor how stocks react after the market opens and if buyers will view the poor Chinese performance and lower price as an opportunity to purchase US stocks.
EUR/USD - Will the Fed Signal Another Hike?
The exchange rate is close to forming a descending triangle pattern, which indicates investors are not willing to invest in the Euro but are uncomfortable continuing to short. This is due to the exchange rate declining by more than 3.80% since the middle of July. The exchange rate is forming a support range between 1.08445 and 1.08612. However, the Euro struggles to maintain bullish momentum for more than a single trading session. If the EUR/USD declines below 1.08690, sell indications can arise, with short-term targets between 1.08612 and 1.08445.
The US Dollar Index is generally flat this morning, and a concern for investors is that the index’s volatility is lower than its traditional volatility range. The US Dollar Index is trading at 103.38 with neither gains nor losses. However, investors will closely monitor the index after the EU Cash Market Opens and at the US Open. Conversely, the Euro is performing generally well in the market during this morning’s Asian session. The Euro is increasing in value against all currencies except the Swiss Franc. The Swiss Franc this morning is the best-performing currency.
Medium to Longer-term indications such as the Parabolic SAR, Volume-Weighted Average Price and the MACD indicate a retracement upwards but a long yet bullish trend. Some indications, such as Regression Channels and larger timeframes, still indicate a downward trend. A key point will be if the exchange rate increases above 1.08932, if the stock market continues to decline and if the Federal Reserve confirms an interest rate hike is likely. Investors will particularly have their eyes fixed on the Chairmen’s speech later this week. Investors are hoping the Federal Reserve Chairman will indicate if a hike is likely in September. If the chairman, Jerome Powell, gives such an indication, the US Dollar will likely continue its trend.
NASDAQ - Stocks Eye Rebound on Earnings
The NASDAQ depreciated for four consecutive days during the previous week, but did experience a correction on Friday after the US trading session opened. One of the main price drivers was the FOMC Meeting Minutes which was viewed as hawkish, and higher bond yields. Looking at the latest performance of bond yields, the subject is still a concern for stock buyers. The 1-Year Bond in the latest session rose 0.022%, and the 10-Year 0.033%. Though on Friday, none of the top-ten influential stocks declined. However, short-term traders will also monitor if investors will take advantage of the discounted purchase price after the asset has fallen 7.80% since mid-July.
A significant factor prompting investors to purchase the asset again will be if the bond market stabilises and also earning reports. Zoom Communications will announce its quarterly earnings data tonight after the market closes. However, investors should note that Zoom only bears a weight of 0.14% and will not significantly impact the price. However, NVIDIA, the fourth most influential stock, will announce its earnings on Wednesday after market close. NVIDIA holds a weight of 4.32%, and analysts expect the company to confirm its highest revenue and earnings. Analysts expect earnings to double and revenue to increase by almost 60%. The stock has risen by nearly 7% over the past week. Investors will want to see higher-than-expected data to continue purchasing the asset.
Furthermore, Intuit Inc, the 21st most influential stock holding a weight of 1.18%, will release its quarterly earnings the day after. Again, if the company confirms higher-than-expected earnings and revenue, the stock potential can rise and support the NASDAQ. Intuit Inc stock has declined by 2.33% over the past week.
For the NASDAQ to experience significant growth, the instrument will require positive earnings data from both NVIDIA and Intuit. In addition, ideally, the Fed President will provide dovish signals later this week and the bond market to stabilise. If not, the asset potentially can continue to decline. If the price declines below $14,670.70 and the VWAP, traders can look at a potential opportunity to short the asset. Also, traders looking to short the asset would also ideally like to see sell orders dominate on the delta statistics during the US trading hours.
Summary:
- The Chinese Central Bank cut their one-year rate to 3.45%, which is lower than analysts were expecting. As a result, Asian stocks decline, but traders will monitor if weaker Asian stocks will support EU and US equities.
- Analysts are advising another interest rate hike by the ECB and Fed could result in the stock market experiencing a further decline of 4%.
- The 1-Year Bond in the latest session rose 0.022%, and the 10-Year 0.033%. Though on Friday, none of the top-ten influential stocks declined.
- A significant factor prompting investors to purchase the asset again is if the bond market stabilises and earnings reports. Investors will fix their attention on NVIDIA and Intuit Inc.
- Analysts expect NVIDIA’s earnings to double and revenue to increase by almost 60%.
