US futures seem to be starting the week on the back foot once again, despite traders hoping to see some positive price action as the S&P 500 has been sliding for the past three consecutive weeks. There are several factors which have triggered this risk off-trade.
Firstly, the conflict between Ukraine and Russia keeps traders on their toes. It doesn’t look like this situation will get better anytime soon as the US has provided more military aid to Ukraine more recently.
Secondly, the Fed in the US is aching to bring the interest rate back to its normal level. Various Fed members are spooking equity traders with the Fed’s monetary policy trajectory. For now, it is widely anticipated that the Fed will increase the interest rate by at least 50 basis points next week when they will meet.
Thirdly and more importantly, it is the earnings season. Indeed, most of the companies reported solid numbers last week, and their earnings reports did come largely in line with the analysts’ forecast. However, the factor which hasn’t satisfied traders is that expectations for earnings have declined in recent months due to the fear of an economic slowdown. After all, stagflation has become a genuine concern for traders.
This week is an action-packed week with several tech giants reporting their earnings, and traders will pay attention to their numbers. Microsoft and Alphabet will report their earnings on Tuesday after the market close. Facebook-parent Meta Platforms will announce its earnings on Wednesday, whereas Apple and Amazon will be under the spotlight on Tuesday.
This week is an important one; the US inflation numbers are coming out this week. In addition to this, we also have the personal consumer expenditure index, considered the Fed’s preferred measure of inflation. On Wednesday, we have the US GDP q/q number hitting the terminals. The US core PCE price index reading will be coming out on the week’s final trading day.
As for today, it is more about the German Ifo Business climate number, and the forecast is 88.3. Remember, Germany is the largest economy in the Eurozone, and any improvement in sentiment here would have a spillover influence on the rest of Europe. The DAX 30 index, which has been in a downtrend for the past three weeks, just like the S&P 500, could certainly use some help from this data.
French voters who headed to the polls on Sunday have made it clear that they are comfortable with their current leader, Emmanuel Macron, and he has become the President once again. Macron coming back in power certainly means stability for the French economy and the Eurozone. Traders feel relieved today as things are likely to stay on course in Macron’s policies, and there is no threat to the Euro, which could have been the case if we had seen a different outcome of the French elections. The turnout on Sunday was two percentage points lower than the 2017 election. Nonetheless, Macon’s victory makes him the first French President in two decades to win a second term. According to the French electoral system, it is also important to note that the President’s power is primarily dictated by parliament, which favours Macron now.
Overall, Macron’s victory now means further EU integration, mainly because France has been in the driving seat for European integration. A lot was at stake going into the election, but now the picture looks more optimistic for Europe.
Gold prices are trading lower today as investors worry about the Fed’s hawkish monetary policy stance. It seems very clear that the Fed will not be increasing the interest rate by 25 basis points, but the number will be 50 points. Speculators believe that the Fed could increase the interest rate by 75 basis points next week, which we think is an improbable scenario for now.
Nonetheless, the gold price is under tremendous selling pressure, and it is moving fast towards the 1,900 price, which is critical support. We may see the price violating this price level, especially if the US economic numbers beat expectations. That would confirm the Fed is likely to remain hawkish for this monetary policy meeting that is taking place next week, but we could expect them to increase the interest rate next time by 50 basis points.
In terms of Bitcoin’s price action, we have seen another lacklustre weekend. We saw the BTC price moving below the 40K price level, which has set a negative tone for cryptos. Remember, 40K is a critical price level, and traders do not want to see the price keep falling below this price level again and again, as this gives bears more power and makes the piece action weak.
But in terms of regulation or overall fundamentals, there is no doubt that they are moving in the right direction. It certainly seems that UAE is becoming the hub of cryptocurrencies. This is primarily due to the region presenting itself as an early adopter and providing a transparent regulatory environment for the crypto space. One of the biggest crypto exchanges, Kraken, is to launch in the UAE. This will only increase institutional capital flow, and we are likely to see more money going into bitcoin. Remember, in terms of Bitcoin, supply is limited while demand seems to be going in one direction and one direction only, which is to the upside.