The US Dollar needs buyers as investors refuse to believe the Fed will hike twice by December. The US Dollar Index is priced at 99.89 and continues to find resistance at 100.00, similar to Friday. This Monday, the main price driver is again poor economic data from China, which indicates that global economic growth remains uncertain. For this reason, the European stock market opened on a bearish price gap, but price action has improved in value since the opening of the European trading session.
Negative and positive factors are influencing the stock market. The global stock market is positively affected by weak inflation, annualising less than 2% and lower than the Fed’s target. As a result, investors believe there would be less pressure on consumer demand from interest rates. In addition, Friday saw the start of earnings season, which again mainly saw higher-than-expected earnings. High earnings indicate larger dividend payments, stock price growth, and lower risk. As a result, the stock market can potentially find a surge in buyers.
However, a severe concern seems to be recurring in July 2023. China published its Gross Domestic Product, the world’s second-largest economy and the best indication of global economic conditions. China’s GDP data for the past quarter read 6.3%, higher than previous figures but 11% lower than the market’s expectations. In addition, China’s Retail Sales figures dropped to a six-month low and again read lower than expectations. The only positive data from the second largest economy was the Industrial Production which read 4.4%, higher than expected.
The poor Chinese data has now had a significant impact on currencies. However, Crude Oil fell from $0.60, and European stocks traded lower. Nonetheless, investor sentiment within the stock market remains relatively high based on a positive first half of the year, high earnings and potentially lower interest rates.
GBP/USD - UK Inflation in Focus This Week
The price of the GBP/USD exchange rate declined on Friday, forming a slight retracement. However, this is understandable after increasing for seven consecutive days. Over the past two weeks, the exchange rate has increased by 3.20%, taking the Pound to a 65-week high against the Dollar. The Pound is being supported by the extremely high levels of inflation within the UK and a fast salary increase. In response, the Bank of England will likely continue hiking interest rates, whereas the Fed’s hiking cycle is almost at an end. The only concern for investors is the UK is at a much higher risk of a recession, and if a recession does transpire, economic activity and orders for the Pound can decline.
The exchange rate’s price action is still forming and trading within a bullish trend, and the main price level can be seen at 1.30177. The GBP/USD will need to push below this level for the bullish trend to end and attempt a correction. At the same time, the continuation of the bullish trend will require a breakout of 1.3141, which has triggered a slight decline three times on Thursday and Friday. Currently, the price trades above the regression channel and above the 50.00 level on the RSI. Additionally, the price is trading above trend lines and has formed a bullish crossover. All the above are signals indicating a potential rise back up to 1.3141.
The number of jobs in the UK fell by 24.4% and is now lower than before the coronavirus epidemic. In addition, the UK economy saw a slight decline according to last week’s GDP figures. However, despite the poor economic data, the Pound continues to rise based on higher interest rates. Some economists believe the Bank of England may raise the base rate to more than 6%. A key figure that will significantly influence the Pound will be the Consumer Price Index this Thursday. If the inflation rate does not fall below 8.3-8.4%, the Pound potentially can experience strong price movement.
Dow Jones - Earning Season Takes Center Stage
The Dow Jones rose 0.33% during Friday’s US Session and 0.72% before retracing. The Dow Jones rose to its highest level since December 2023 after being positively supported by earnings, specifically by UnitedHealth Group. However, the index was pressured towards the end of the session as stocks such as Chevron, Cisco Systems, and Walt Disney declined. The Dow Jones saw 11 of its 30 stocks end the day higher, which is disappointing. However, the index was higher than the previous day due to significant gains amongst certain stocks.
UnitedHealth Group holds the largest “weight” within the index, rising by 7.24% after seeing solid earnings and revenue. The company’s Earnings Per Share read 2.68% higher and revenue 2% higher. The index was also positively impacted by other strong earnings from the banking sector, such as JP Morgan. JP Morgan stocks have risen by 3.42% over the past week and saw earnings read 25% higher than expected. JP Morgan’s revenue also was significantly higher than analysts’ expectations (6% higher).
This week's index will continue to be influenced by earnings, specifically on Wednesday. On Wednesday, Tesla, Netflix, and Goldman Sachs will release their latest Quarterly Earnings Report. These three reports will influence investor sentiment in general across the market as they also indicate the economy's performance. However, investors should note that only Goldman Sachs stocks are included in the Dow Jones. Goldman Sachs stocks are the third most influential, holding a “weight” of 6.29%. The bank is expected to witness much lower figures than the previous quarter.
Summary:
- Over the past two weeks, the GBP/USD has risen by 3.20%, taking the Pound to a 65-week high against the Dollar. Economists expect the Bank of England to continue rising interest rates.
- China’s GDP for the past quarter read 6.3%, higher than previous figures but 11% lower than the market’s expectations.
- The US Dollar continues to remain under pressure from low inflation data and an end to their hiking cycle.
- JP Morgan and UnitedHealth Group publish strong earnings supporting the stock market and specifically the Dow Jones. Tesla, Netflix, and Goldman Sachs will also announce their earnings this Wednesday.
