Welcome to Key To Markets preview of the Week Ahead.
5-day performance as of January 18, 2024. 11:30 GMT
Source: finviz.com
In case you missed it…
Markets reined in bets of an early Fed cut. Hawkish Fed commentary and stronger-than-expected retail sales saw the market dial-back rate cut expectations.
UK CPI unexpectedly rose to 4%. Core inflation also remained sticky at 5.1%. The market reined in BoE rate cut bets, with the first rate cut fully priced in for June.
ECB President signaled a summer rate cut. Christine Lagarde said that she sees a rate cut in the summer. Other ECB officials painted mixed messages with regard to rate cuts. EUR/USD fell below 1.09.
Apple cut iPhones in China. The tech giant made the rare move of cutting iPhone prices in China, highlighting the pressure that increased local competition Apple is facing.
USD/JPY rally continued. The pair rose for a third straight week, hitting a weekly high as the market reined in dovish Fed bets and hawkish BoJ expectations.
Goldman Sachs posted profits. The investment bank posted a 51% rise in profits thanks to the asset. and wealth business rather than the investment banking business
Tesla cuts prices. The EV maker slashed prices across Europe, including in Germany, where it also lost the crown as the top EV producer to Volkswagen.
Morgan Stanley posted mixed Q4 earnings. The investment bank was hit by heavy regulatory charges, and CEO Ted Pick warned of major downside risks ahead.
China’s GDP was weaker than expected. China’s GDP rose 5.2%, below the 5.3% that was expected but up from 4.9% previously. Oil prices fell after the data.
Bitcoin ETFs pulled in $871M in the first 3 days of trading. According to CoinShare, BlackRock led the way with $723 million, followed by Fidelity with $545 million. The inflows were offset by $1.18 billion in outflows at Grayscale.
The chart shows how Japanese stocks are rapidly closing the gap versus China. The difference between market cap of mainland Chinese shares and Japanese stocks has closed to $2.55 trillion, the lowest since July 2020.
Strong international demand and doubts over a hawkish BoJ pivot has helped boost Japan’s Nikkei 225 to a 34 year high this week. Japanese equity gauges have been the strongest performing indices over the past 12 months, gaining over 25%.
This is in stark contrast to Chinese equities which are quickly falling out of favour. The CSI 300 index fell to its lowest level since early 2019 this week amid concerns over the economic outlook as the world’s second largest economy fails to resolve issues which weigh on domestic demand and confidence.
1. ECB meeting
The ECB is set to meet on Thursday, January 25, with a focus on how policymakers will react to current market pricing, given the stock discrepancy between market rate cut expectations and official ECB comments. Microdata since the December ECB meeting has broadly been in line with expectations, including the re-acceleration of headline inflation. The central bank is expected to leave interest rates on hold and may give very little away about the timing of any upcoming rate cuts, reiterating that the job is not yet done for the ECB. The central bank is likely to be cautious, given the opposing factors that could impact inflation, including weaker demand but also possible inflationary pressures as a result of tensions in the Middle East.
2. US Core PCE
US core PCE, the Federal Reserve’s preferred gauge for inflation, on Friday January 26, will be the major focus for U.S. dollar and US equity traders next week. While CPI inflation data ticked higher in December, core CPI continued to trend lower. Investors will be watching to see whether core PCE also cools further in December towards the Fed’s 2% target. Personal spending figures will also be under the spotlight, with strong numbers pointing to a resilient consumer, which could support the soft landing narrative.
3. Netflix earnings
Netflix is due to report earnings on January 23rd, and Wall Street is expecting an EPS of $2.24 on revenue of $8.71 billion. Netflix is expected to see continued growth from its password-sharing crackdown and its low-cost advertising subscription plan. The $6.99 price point for the ad-supported tier is an attractive low-priced option in a competitive market. Netflix recently announced that it had more than 23 million active users in the ad-supported tier, up from 15 million in November and 5 million in May. Subscription numbers, as always, will be in focus.
4. Tesla earnings
Tesla is due to report Q4 earnings on January 24 with forecasts of EPS at $0.74 on revenue of $25.76 billion. The figures come after and after earnings and revenue missed forecasts in the previous quarter. Tesla reported 485,000 deliveries for Q4 2023, an increase of around 20% compared to last year. However, the stock trades down 9% year to date as the EV market has been cooling off due to high-interest rates making it more expensive to finance EVs and also owing to weaker consumer sentiment. Tesla has also cut some prices, which could hurt the bottom line as Tesla fights for market share.
5. BoC rate decision
The Bank of Canada will meet on Wednesday, January 24, to give its first rate announcement for 2024. The central bank left interest rates on hold at 5% in the December meeting, which marks the 4th consecutive rate hold of the year. Expectations are that the BOC will keep interest rates on hold, potentially until mid-2024, as inflation rises once again in Canada to 3.4%, squashing hopes of an early loosening to monetary policy. The market will be looking for any clues over the timing of the first rate cut.
TA of the major asset classes (Forex – Commodities – Indices).
Summary
Detailed Analysis
EUR/USD (D1): Currently, the EUR/USD pair shows a neutral to bearish trend, having recently fallen below the 50-day Simple Moving Average (SMA). This suggests a potential shift in momentum. The support levels are identified at 1.07098 and 1.0508, while resistance can be seen at 1.0928 and 1.1462. The Relative Strength Index (RSI) at 43 leans towards bearish momentum, implying there might be room for further downside movement.
GBP/USD (D1): The GBP/USD pair exhibits a bullish trend to neutral, consistently staying above the 50-day SMA but forming mixed highs and lows. This indicates an ongoing but slowing upward momentum. The support levels are set at 1.2399 and 1.2128, with a resistance level at 1.2950. The RSI stands at 50, which is neutral, suggesting that the price action is consolidating and the direction could sway either way.
USD/JPY (D1): This pair is in a bullish trend, pushing back above the 50-day SMA and showing patterns of higher lows and highs. Support levels are noted at 146.57 and 143.82, with resistance at 150.03. The RSI of 64 indicates strong bullish momentum, as it is above the midline and nearing overbought territory, which may hint at a continuation of the uptrend.
XAU/USD (D1): Gold (XAU/USD) is in a neutral to bearish trend, positioned below the 50-day SMA and demonstrating lower highs. This suggests a weakening momentum. Support is found at 1964.44 and 1902.00, with resistance at 2025.97 and 2080.79. The RSI, at 44, indicates bearish momentum and a possibility for further declines.
Brent Crude Oil (D1): Brent Crude Oil displays a neutral to bearish trend, being below the 50-day SMA. The support level is at 72.488, while resistance is seen at 80.006 and 86.875. With an RSI of 47.38, the market seems indecisive, which could mean a balance between buyers and sellers.
S&P 500 Index (D1): The S&P 500 Index shows a bullish trend, trending above the 50-day SMA despite recent pullbacks. Support levels are at 4717.57 and 4565.90, with resistance at 4806.55. An RSI of 57.85 indicates healthy bullish momentum, suggesting that the market is not overextended and may continue its upward trajectory.
Thank you very much for reading – and have a great week trading!
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