US Treasury Secretary Yellen advises markets that the Chinese economic slowdown is a concern for the global economy, including the US. However, Yellen also told journalists the slowdown does not mean the US is at a more significant disadvantage, and she does not believe the US will experience a recession. This week other large investment banks, such as Goldman Sachs, have lowered the chances of a recession over the next 12 months from 35% to 25%. As a result, the stock market has outperformed expectations, and the Dollar’s trend points downwards.
The best-performing US index is the NASDAQ which has risen by 4.28% over the past week. The S&P 500 is up 2.43%, and the Dow Jones by 1.55%. The primary influence continues to be the lower inflation rate, but Yellen’s latest comments and reports from the banking sector also support investor confidence. However, the upward price movement will only likely maintain momentum if earnings remain positive.
The latest US data also signals a “soft landing” and not an economic contraction. Yesterday afternoon the Empire State Manufacturing Index read 1.1%. The index is lower than the previous month but remains above neutral and is more than earlier expectations. However, the data could not significantly support the Dollar as investors are still pricing lower rate hikes. The US Dollar Index this morning is trading at 99.81, lower than yesterday’s open price. Investors this afternoon will fix their focus on the US’s Retail Sales data which can create volatility for the Dollar. The Retail Sales data is expected to rise to a five-month high.
German DAX Faces Significant Resistance Level
An asset that has fascinated technical analysts is the German Dax which is experiencing a significant surge in buyers at times but is close to forming a downward trend. The asset is experiencing stronger upward price movement, but the index has formed lower lows and lower highs since June 16th. The index has increased in value, similar to US equities, in response to low inflation data and has outperformed the Dow Jones in 2023.
So, are investors witnessing a bullish or bearish trend? The latest impulse wave is larger than the previous, even if it did not achieve a “higher high”. The newest impulse wave measured 4.30%, whereas the last measured 3.19%. Therefore, the DAX is not formally within a downward trend, but investors should be cautious that the index is forming a psychological price level at 16,300 and 16,450. These levels have been a barrier for investors in May and June of this year and 2021.
Economists say a significant resistance level reduces investors' confidence in purchasing above this level. Analysts are also noting that the European market is expanding at a slower pace than previously predicted. However, members of the European Central Bank, such as Ignazio Visco, are advising that inflation is likely to drop at a faster-than-expected pace. If inflation does indeed decline at a faster pace, consumer demand may rise, and interest rate hikes may cease. If inflation is lower, interest rate hikes cease, and earnings outperform expectations, investors may become more confident in trading above the resistance level.
No significant economic data is expected to be released within the European Union this week. However, Thursday’s UK inflation data can also slightly affect sentiment within EU equities.
NASDAQ - Bullish Signals Continue For Now
The NASDAQ has again managed to renew its highs for 2023 increasing by 1.43% this Monday and is also slightly higher this morning. The NASDAQ is currently providing clear bullish signals in the medium term and on the larger charts such as the 1-hour and 4-hour. The asset is forming clear higher highs and higher lows. The regression channel continues to point upwards, and crossovers on larger time frames are again signaling bullish price movement. However, investors should note that these signals may change if the price declines below $15,526.
According to reports from the Chicago Mercantile Exchange, economists estimate the likelihood of a 0.25% hike is at 96.1%. The regulator convinced the markets that the “hawkish” rhetoric would put decisive pressure on price growth, and then the Fed may focus on fighting the recession. The possibility of an interest rate hike this month is so high as the FOMC previously stated the hike would not depend on inflation. However, markets believe this would be the last hike of 2023.
The best-performing stock within the top ten most influential stocks within the NASDAQ was Tesla which rose by 3.20%. The best-performing stock, in general, was Enphase Energy raising 6.59%, and Lucid Group by 4.93%. 71% of the NASDAQ’s composite ended the day higher on Monday, and the worst-performing stock was Xcel Energy Inc declining by 1.65%.
Throughout the day, the US Retail Sales data will influence the NASDAQ. Higher than expected can support the stock market based on a better economic outlook. However, the index will also be affected by the following Quarterly Earnings Releases:
- Bank of America - Expected Earnings Per Share $0.84 - Before Market Opens.
- Morgan Stanley - Expected Earnings Per Share $1.67 - Before Market Opens.
- Charles Schwab - Expected Earnings Per Share $0.73 - Before Market Opens.
The stocks may not be included in the NASDAQ but can still influence investor sentiment. As Tesla and Netflix release their earnings report, tomorrow will be a more significant day for the NASDAQ.
Summary:
- The US Treasury Secretary and US banks advise the US is at a lower risk of experiencing a recession.
- The DAX is not experiencing a downward trend but is struggling at a major resistance level.
- The EU is experiencing lower-than-expected economic growth, and inflation is expected to decline faster.
- The NASDAQ has again managed to renew its highs for 2023 increasing by 1.43% this Monday. Investors turn their attention to earnings in the diary for Tuesday and Wednesday and today’s Retail Sales data.
