US Stocks Buckle Under Hawkish Fed and Poor Chinese Data

The US stock market comes under pressure from a hawkish Federal Reserve and poor Chinese economic data.  The Fed’s Minute Meeting confirms that the committee is not as “data dependent” as they were in the past 6-months. The interest rate cycle is already set instead of being dependent on inflation data. Analysts advise that the Federal Reserve is almost set on hiking interest rates in July, but hikes will be less frequent. The Minutes Meeting also confirms a disagreement amongst members, with some remaining hawkish while others prefer to keep rates unchanged. Some members are advising rates should remain unchanged as inflation continues to fall, but these members remain outnumbered. 

According to analysts, the path is set against the market bulls as the Fed’s choice will depend less on employment and inflation data. For example, according to analysts, lower NFP data will still point towards a rate hike, and higher NFP data will again point towards a hike. So either way, the stock market will be pressured by hikes, but will investors listen? For the Fed to abandon a hike in July, data must be extremely harmful, which is highly unlikely.

NASDAQ - Hawkish Fed Pressure Global Stocks

The price of the NASDAQ saw three major impulse waves during yesterday’s trading sessions. The price was first pressured by poor economic data from China, which can weigh in on demand and supply chains. Bulls re-entered the market taking advantage of the discounted price once the US session opened. However, the momentum was lost as the Minutes Meeting indicated more hikes regardless of data.  

As a result, the price of the NASDAQ ended the day with neither gains nor losses but is declining during this morning’s futures market. The price is 0.57% lower this morning, and all global markets head downwards. Looking at the stock market performance during this morning’s Asian and futures trading session, the market is showing an apparent “risk-off sentiment”. Asian stocks are particularly experiencing a vigorous bearish session, with the Hang Seng down 2.80% and the Nikkei225 down 1.70%. The weaker market sentiment results from investors' pricing at a terminal rate of 5.60% to 5.70%.

The Federal Reserve is not the only central bank likely to continue hiking, which is also a global concern for investors. For example, the Bank of England now states a terminal rate of 6.5% by March 2024. Economists are also focusing on the price of Oil, which has risen by 7.5% since the end of June. According to economists, if Oil establishes itself above $75 per barrel, inflation will become harder to keep down. Additionally, if OPEC achieves its target of $80 per barrel, this would significantly pressure the cost of living and consumer demand. 

Positive elements such as earnings, AI, and sales data will continue influencing the price movement. Nonetheless, investors' primary focus is the interest rate development. The indices price continues to find support at the $15,099 to $15,121 level. Further sell signals can potentially develop if the price declines below this level. NASDAQ’s top ten influential stocks are performing well and keeping the index afloat. Investors will also focus on individual stocks' price movement, mainly on the top 20 stocks with the highest “weight”.

NASDAQ 1-Hour Chart on July 6th

EUR/USD - Can Positive Employment Data Boost the Dollar?

The exchange rate price has been increasing by 0.18% since the market opened and by 0.29% over the past 3 hours. The Euro is attempting to form a full correction regaining lost ground from yesterday. However, the price action mainly being driven by the US Dollar and not the Euro. Therefore, investors need to be monitoring the US Dollar Index. The US Dollar Index is down 0.15% so far this morning. 

The price of the Dollar will continue to be influenced by the Minutes Meeting report. However, investors will also monitor the JOLTS Job Openings and ISM Services PMI this afternoon. Markets expect the JOLTS Job Openings to read 9.93 million and the Services PMI to increase to 51.3. If data comes in higher than expected, the Dollar may be supported as the recession risks decline, and more than two hikes from the Fed may become a reality. 

Volatility this morning is considerably higher than the previous days, and the exchange rate has retraced upwards to the previous support level. If a downward trend is to form, bearish momentum will need to be gained at this point. The regression channel on a 1-Hour chart also indicates resistance at this level, and the price is trading below the 75-bar moving average. However, traders will look for a downward crossover and a decline to open short positions.

EUR/USD 15-Minute Chart on July 6th

Summary:

• The Fed’s Minute Meeting confirms that the committee is not as “data dependent” as they were in the past 6-months. A 0.25% hike in July is likely, according to analysts. 
• The price of the NASDAQ and global stocks are under pressure from indications of higher interest rates. 
• The global stock market declines and indicates a "risk off" sentiment, with Asian and European stocks showing significant declines. 
• Investors will also monitor the JOLTS Job Openings and ISM Services PMI this afternoon. Markets expect the JOLTS Job Openings to read 9.93 million and the Services PMI to increase to 51.3.