US and European futures are struggling for a direction while investors and traders aren’t sure about the risk-on rally. Basically, there are several factors that influence price moves. Firstly, the anticipation of less aggressive monetary policy from the Fed makes traders back riskier assets. However, what takes the wind out of the rally is the US corporate earnings, especially yesterday’s which sent mixed signals. What this is doing to the US stock indices is making them trade in a tight range as new information continuously gets absorbed and digested by traders and investors.
The closing value of the Dow was 33,733.96. This represents an increase of 104.40 points (or 0.31%). The Dow Jones 30 index has now gone three days in a row with positive results. The S&P 500 finished the day with a loss of 0.07%, coming in at 4,016.95, while the Nasdaq Composite had a loss of 0.27%, coming in at 11,334.27.
Microsoft reported its quarterly earnings after the US market close. The quarterly earnings were better than the expectations as the company does have a well-diversified portfolio. The initial reaction to its stock was positive as traders saw the company doing much better than the expectations. However, the downfall and loss of momentum happened when it started to talk about its future forecast which was mostly disappointing and something that traders didn’t want to hear from Microsoft. The business projected sales between $50.5 billion and $51.5 billion for the fiscal third quarter, but market players estimated $52.43 billion in revenue for the period.
Given that Microsoft didn’t give us a gloomy picture for the future yesterday, many traders have started to believe that the remaining earnings may begin to roll over mainly due to weak consumer spending.
In the currency market space, the latest data shows that inflation in Australia has jumped to a new 32-year high and produced a reading of 7.8% during the final quarter of the fiscal year of 2022.
Costs associated with both domestic and international travel saw significant price increases, with domestic travel seeing an increase of 13.3% and overseas travel seeing an increase of 7.6%.
The Reserve Bank of Australia projected that the quarterly consumer price index would increase by 8%, whereas economists predicted that it would climb by 7.5% instead. Prices of items increased by 9.5%, which is significantly less dramatic than the 9.6% print from the previous quarter. On the other hand, the cost of services increased by 5.5%, which is the largest increase since 2008.
The Aussie dollar is likely to experience some strength as anticipation that the RBA is far from having finished its job. This means that in the coming days, we could hear more hawkish comments from the RBA’s official members.
Later in the day, we are going to hear from the Bank of Canada and its monetary policy decision. The bank is expected to increase the interest rate by 25 basis points to 4.50%, which will show a slowdown in the pace of interest rate hikes. The commentary and press conference by the BOC could bring wild moves for the CAD. The bank is unlikely to give a signal that it finished its job, and the higher inflation situation will resolve its matter by itself. We believe that the commentary is still likely to be a bit more hawkish from the BOC.
Oil prices continue to remain interesting as bulls are still in town and continue to support the prices. Yesterday, we saw further strength coming into the oil market and investors continue to bet on the most important factor – the Chinese demand and its recovery. Rumors have started to flow already ahead of the OPEC’s meeting, which will take place next week, and the generic message is that the cartel will not allow another supply glut, and they stand ready to control supply.
In terms of the price level, it is the resistance of $90 for Brent oil prices that matters the most. The current momentum in the price action supports the theory that we could retest this price level. However, we still need a lot of conviction among traders to reach that.