Investors and traders are fully back to their desks after a long Easter holiday break and are adjusting quickly to all news that was released during this time. We saw Chinese economic numbers coming out better than expected, and the earnings season has gone into full-blown action. Traders are trying to make some sense of James Bullard’s comments who believes that the Fed can increase the interest by 75 basis points next time, a scenario which isn’t priced into the markets yet.
This week it is primarily going to be about US earnings. Netflix is the name which comes to mind with respect to earnings. Analysts will be looking at the impact of a recent price rise as well as the termination of its service in Russia. IBM will be investigated to determine whether it can maintain its software unit’s sales progress.
Overall, investors would like to know two things: firstly, how well are the US companies positioned to face the soaring inflation situation, which is likely to become a bit worse due to the increasing interest rate environment. Secondly, are they finding some relief with their supply chain issues?
For companies like Tesla, it doesn’t matter to a large extent if the CEO has strong political views, for instance, taking on the Russian President’s invasion of Russia on Twitter. The reality is that Tesla’s potential customers who already have not bought into their future philosophy, Tesla doesn’t care about them anyway. However, it matters a lot for companies like Amazon, BP, or JP Morgan. So traders are going to see the influence of them exiting their businesses from Russia.
Today’s price action is also factoring in the mixed news about the Chinese economy. On the one hand, traders have seen the Chinese GDP number performing better than expected. The economic data came in at 4.8% against the forecast of 4.2%. The number has set an encouraging tone among investors who feel somewhat comfortable backing riskier assets. In addition to this, we also see more willingness from the Chinese government to provide extra support to companies that are chiefly influenced by Covid.
However, investors are largely focused on China’s zero-tolerance policy, and they want this to be completely gone. You just cannot continue to shut down factory after factory, city after city, province after province due to Covid. The new era demands that we need to get used to living with Covid, and it is highly likely that new variants will continue to emerge. Still, one cannot shut down businesses as such policies’ influence is extremely detrimental to the supply chain. After all, China is still the backbone of the global supply chain for everything, especially for tech companies.
In terms of the economic docket, the event which stands out the most is the Fed Chair’s speech on Thursday. Expectations for Fed rate rises have grown dramatically in recent months, despite the fact that the Fed has stated that it would be data reliant in determining how it will raise rates during the year.
Concerns about the Fed’s next moves have also prompted excessive volatility in the bond market, which has impacted equities in recent weeks. The 10-year Treasury yield reached its highest level in three years on Monday.
Gold experienced a decent surge in prices last week. Yesterday, we saw the gold prices surging all the way to $1998 an ounce, only a few dollars shy of breaking into the $2,000 an ounce price category.
The fact about gold prices is that there are two prominent factors that are constantly pushing prices. Rising inflation and conflict between Ukraine and Russia are on traders’ minds when it comes to the precious metal’s rally. The most intriguing fact about the gold price is that the current surge in the precious metal is taking place when the dollar index is looking immensely healthy in terms of its price action. Generally speaking, the dollar index is the main denominator for the gold prices, and when the dollar index increases in prices, we usually see the gold price moving lower and losing its uptrend.
We are in an environment where the Fed has adopted the most hawkish monetary policy in almost decades. The future stance of their monetary policy only seems to be becoming more hawkish. But the fact that gold prices are flirting with the $2,000 price level sends a clear signal that gold traders are less worried about the Fed’s hawkish stance, and they are more interested in pushing gold prices higher.
Oil price seems to be picking up strength once again today as both Brent and Crude oil are trading in positive territory. However, according to the most recent statistics from ICE Futures Europe, hedge funds sold bullish positions in Brent oil futures for the third week in a row. In the week ending April 12, money managers sold a net of 3,277 futures contracts, bringing the total to its lowest level since November 2020. The flight comes as oil markets are characterized by significant weekly swings as traders evaluate Russia’s war in Ukraine, the release of strategic petroleum reserves, and a virus resurgence in China, all of which might decrease global demand.
Asian markets traded mostly mixed today, and the sell-off was chiefly led by the Chinese tech sector. Investors are increasingly concerned about the regulatory crackdown by the Chinese authorities, who this time went after the gaming industry. The fact that gaming companies cannot Livestream video games without authorisation has made shares of several gaming companies tumble on Tuesday. Bilibili shares stock plunged over 10%, NetEase share price sank 2.66%, Alibaba, a company that is already under tremendous scrutiny, dropped a further 3.77%, and Tencent’s stock price fell by 2.83%. This sell-off made the Hang Seng index tank nearly 4% during the intraday session.