Global stocks rise as disappointing EU, UK and US data indicate that the global economy will witness a recession. In addition, poorer economic data also signals interest rate hikes are near an end, supporting the Dow Jones. The Federal Reserve started its two-day meeting to discuss how the Federal Fund Rate should be altered. This morning, China will announce fiscal changes fueling Asian and European stocks.
The possibility of further interest rate hikes, the current risk of recession, and earnings data are influencing the global equity market. However, these factors also can affect the currency market. Interest rates will continue to influence the currency market. However, investors have noticed an apparent demand for “safe haven” currencies. The best-performing currencies over the past two weeks have been the Swiss Franc, the US Dollar and even, at times, the Japanese Yen. These three currencies make up the safe haven category within the currency market. It should also be noted that certain central banks, such as the Swiss National Bank, have only slightly altered interest rates, and the rate remains uncompetitive. Nonetheless, demand has risen due to the higher risk of a recession.
According to experts, the risks of a recession are higher due to higher interest rates and higher food and fuel prices. The price of Crude Oil has risen for five consecutive weeks, measuring 12.30%. The price of Crude Oil is now at its highest since April 2023 and can cause inflation to become more challenging to tackle. However, economists are advising stickier inflation may not force regulators to increase rates more than prices as long as inflation is not climbing.
Dow Jones - Visa Earnings in Focus Despite Recession Fears
The Dow Jones was again the best-performing index from the top three US indexes due to the positive earnings from the banking sector. In addition, Dow Jones avoided the negative effect of significant stocks declining, such as Netflix and Tesla. However, the best-performing index of the day is the NASDAQ which is experiencing higher demand due to fiscal support expected in China.
According to China’s leading media channels, the state is believed to announce further rate cuts, fee reductions, and tax cuts. The Chinese government fears deflation after poor economic data from China and Europe, which is very important to China. Expansionary fiscal policy improves investor sentiment, which is why global stock markets, including US equities, have risen. However, Dow Jones has not seen such a significant buyer surge compared to other indexes.
The latest US Purchasing Managers Index positively supported the Dow Jones on Monday. The US Services and Manufacturing PMI shows that the US economy will likely experience lower growth but not a harsh recession. As a result, the data points towards only one hike and a soft landing which is positive for equities.
The best-performing equities within the Dow Jones was Goldman Sachs, increasing by 1.98%, and JP Morgan raising a further 1.97%. Only eight of the 30 stocks within the index ended the day lower. The index will now essentially be influenced by Visa’s quarterly earnings report, scheduled to be released after the market close tonight. Visa is the 7th most influential stock on the Dow Jones. Investors believe the company will confirm higher earnings and revenue than in quarter one. Experts believe Visa’s earnings per share will read $2.12, higher than the previous four earnings releases. Higher earnings and revenue can support the individual stock and the Dow Jones.
The price of the Dow Jones will also depend on the guidance given during tomorrow’s press conference. The interest rate hike is almost inevitable and, therefore, May have a reduced effect. However, many economists believe this month's hike could be the last in the current long cycle of monetary policy tightening. The Fed will try to take a wait-and-see attitude, after which it may return to lower borrowing costs in early 2024, which will depend on the actual situation in the economy. Most economists believe the Fed will hold interest rates unchanged for at least six months. However, different indications from the Fed can create high volatility. In the meantime, investors will be focused on today’s CB Consumer Confidence and Visa’s earnings report.
Technical analysis points towards a bullish trend, with the regression channel pointing upwards and the RSI trading above 50.00. This morning's price has slightly lost momentum, but the RSI suggests a support level. Though, traders should note technical indications can change if the price continues to decline below $35,176. The current moving average is crossed over downwards but trades above the 75-bar moving average. Therefore, technical analysis points towards a loss of momentum followed by a bullish impulse wave. A positive for the Dow Jones is the instrument is trading above previous resistance levels and Fibonacci retracement points.
Summary:
- Disappointing data from the EU, UK, and US indicate that the global economy will contract. However, data suggests that the EU and UK are at a greater risk.
- China is increasingly fueling Asian and European stocks, signaling fresh support for the economy and its weak recovery.
- According to China’s leading media channels, the state is believed to announce further rate cuts, fee reductions, and tax cuts.
- Dow Jones continues its bullish run but retraces during this morning’s Asian session.
- Visa, the 7th most influential stock within the Dow Jones, will announce its earnings after the market close.
- The Fed will try a wait-and-see attitude before returning to lower borrowing costs in early 2024.
