US and European futures are trading somewhat soft as traders are taking a pause after the stellar rally yesterday. The rally was fuelled on the back of two things: firstly, the US economic data came out softer than the expectations and this has made traders believe that the Fed cannot be overly hawkish with its monetary policy. Secondly, and more importantly, the earnings reports that we have received so far are still much better than the forecast.
Netflix will report its earnings numbers today and analyst expects the company to grow its revenue by just 5% year/year. The stock surged over 6% ahead of its earnings yesterday.
One of the biggest worries for investors and traders has been that in this earnings season, we are going to hear a lot of bad news from US companies. The reasons have been very simple, soaring inflation and fading disposable income have pushed consumers into a corner, and no one has been expecting anything good. However, the numbers that we have seen so far from the US banks have been decent, along with their guidance, and this means the apocalypse hasn’t materialised yet. So far, the financial results of the third quarter for 35 organisations have been released. 68.5% of companies in this category have exceeded analysts’ expectations, which is lower than the average of the previous four quarters, which was 78.1%, but higher than the historical average, which was 66.2%.
As in the second quarter, many people have been preparing themselves for an earnings apocalypse, sometimes known as a significant decline in profits. The available data points to a decrease in size but not a complete collapse. The expected growth rate of profits for the third quarter for the S&P 500 companies is presently 3.6%, which is a decrease from 11.1% on July 1. However, when energy is not taken into account, the growth rate decreases to -3.1%.
Just six weeks after moving into Downing Street, the Prime Minister of the United Kingdom, Liz Truss, is facing demands for her resignation from inside her own Conservative Party. According to several speculations, elected members of Truss’ own party are publicly demanding for her to resign. It is reported that up to one hundred members of the party have written letters of no confidence in the Prime Minister. As a result of the fact that she answered just four questions from reporters at a press conference on Friday.
Labour has demanded that Truss be subject to investigation by parliamentarians. According to The Guardian, findings from a poll conducted by Opinium Research for the Trades Union Congress indicate that Labour is poised to win the next election by an overwhelming margin.
On September 23, Truss and her predecessor in the position of Minister of Finance, Kwasi Kwarteng, made the announcement of a fiscal package, sometimes known as a “mini-budget.” The actions resulted in market instability, such as a falling pound and pension panic, as well as an extremely unusual public criticism from the International Monetary Fund (IMF).
Modifications and eliminations have been made to the plans. For example, the energy guarantee, which was supposed to subsidise consumer and company energy prices, was reduced from two years to only six months and plans to reverse a planned rise in the corporation tax were scrapped.
Gold prices continue to trade flat on Tuesday while traders are keeping a close eye on the US dollar, which lost some momentum yesterday. The factor that matters the most for gold prices is the Fed’s monetary policy stance. Even yesterday, the IMF’s first Deputy Managing Director reiterated that the Fed needs to stay on its hawkish monetary as inflation is stubbornly high. This indicates that the Fed is likely to increase the interest rate once again by 75 basis points during their meeting next month.
The Fed is still very much at the mercy of the economic data, and the numbers released yesterday showed that Fed could not be overly aggressive with its monetary policy. This is because the Empire State Manufacturing data actually fell off a cliff and printed a reading of -9.1 against the forecast of -4.3.
We believe that if gold prices are likely to move higher, they need to break the resistance of 1,700, and the price must continue to stay above this point.