Expectations of interest rate rises by the Federal Open Market Committee (FOMC) may be rising as a result of the report of their last meeting, where members declared increased action to combat inflation. This had a negative impact on sentiment, among others, in the US market. What else did the past week reveal to us?
Macroeconomic data
We started the week of key macroeconomic data on Tuesday. First, we learned about economic sentiment readings in Germany. The PMI industrial managers' sentiment index came in worse than expected at 46.5 (47.8 was expected), while the sentiment index for the next six months among financial analysts positively beat expectations at 28.1 (22 was expected). This is a continuation of the increase in this indicator for 5 months. Rising expectations seem to be keeping the DAX index (DE40) up, which closed at the same level it was at the beginning of the week.
Source: Conotoxia MT5, DE40, Daily
On the same day, we learnt readings of sentiment indicators from the UK, which surprised analysts positively. The PMI for both manufacturing and service sectors came in at 53 points (49 points were expected). This is the first reading above 50 points since August 2022, which could indicate expected future growth in this economy. This would also be confirmed by UK company valuations. The UK100 Index (UK100) is currently reaching its historic highs.
Source: Conotoxia MT5, UK100, Daily
We started Wednesday with Germany's CPI inflation reading for February. It was in line with expectations at 8.7%, the first increase in German inflation since November 2022. However, it seems that the most important thing of the day was the minutes of the February FOMC meeting. The transcript of the discussion may have triggered a downward reaction in the US market, as more policymakers opted for a repeat of December's half percentage point rate hike. Most participants in the discussion agreed that it was appropriate to raise the target range for the federal funds rate by another 25 basis points, with many saying they were willing to consider a larger range of future hikes to bring inflation back to the target of around 2% as soon as possible. The FOMC reaffirmed that inflation remains elevated, with growing concerns over Russia's actions, as well as the loosening of Covid tightening in China, continuing to contribute heavily to heightened global uncertainty and posing significant risks to continued high inflation. The S&P 500 Index (US500) is down almost 2% this week.
Source: Conotoxia MT5, US500, Daily
We started Thursday with the Eurozone CPI inflation reading for January. It turned out to be in line with analysts' expectations, coming in at 8.6% and losing momentum for the fifth time in a month. On the same day, we learnt the GDP reading from the United States, which was slightly worse than analysts' consensus at 2.7% (annualised, 2.9% was expected). We also learned about the number of new claims for unemployment benefits: 192,000 (200,000 expected). It seems that despite the economic slowdown, the US economy remains stable.
At the end of the week, we learned the GDP results for the German economy. The market now seems to be struggling with a slowdown, as the reading was minus 0.4% m/m. (minus 0.2% m/m was expected) and this is the second consecutive downward reading.
The stock market
Following the publication of the transcript of the FOMC meeting discussions, shares of companies from almost all sectors of the S&P 500 index were able to fall. The energy sector lost the most, by as much as 3.2%, while the consumer goods sector (up 0.6%) was the only gainer. What may seem interesting is that the declines in the energy sector came despite increases in commodity prices. Natural gas futures prices have risen by almost 8% since the beginning of the week. Oil prices remained unchanged.
Source: https://www.sectorspdr.com/sectorspdr/tools/sector-tracker
This week we continue with companies' quarterly reports for Q4 2022. On Tuesday, the largest US retailer, Walmart (Walmart), released its financial results. The chain reported earnings per share EPS of US$1.71 (US$1.52 was expected) and higher-than-expected sales revenue.
Source: Conotoxia MT5, Walmart, Daily
Technology giant Nvidia (Nvidia) delivered a better-than-expected report on Wednesday. EPS came in at US$0.88 (US$0.81 was expected). The company's shares opened the following day 14% above the previous close following the report.
On Thursday, US online accommodation and other travel services booking company Booking (Booking) reported better-than-expected EPS of US$24.74 (US$22 was expected).
Source: Conotoxia MT5, NVIDIA, Daily
The week ended in the red for most companies, with technology giant Alphabet (Google) pioneering the biggest falls, down more than 6%.
Source: https://finviz.com/map.ashx?t=sec&st=w1
Currency and cryptocurrency market
After the FOMC 'minutes', the US dollar began to strengthen significantly, as could be seen in the quotations of the EUR/USD pair, which has fallen by 1.1% since the beginning of the week. The Australian dollar lost significantly: quotations of the AUD/USD pair fell by 1.6% since the beginning of the week.
Source: Conotoxia MT5, EURUSD, Daily
We may see a correction in the cryptocurrency market after a successful start to the year. The price of bitcoin has fallen by more than 3% over the course of this week, while ethereum has fallen by 2.9%. bitcoin seems to have stopped at a price of US$25,000. However, despite the recent increases, an outflow of funds from this market could be noticed. The capitalisation of stablecoin fell by almost 2% m/m.
Source: Conotoxia MT5, BTCUSD, Daily
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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