US and European futures are trading mixed as traders are more focused on two things. Firstly, the economic data that influences their trading decision. Investors have become somewhat wary about the ongoing weakness in the economic data, and it is clear that they are no longer treating the bad news like good news. Secondly, a large number of mega tech companies will be announcing their earnings. Weak guidance and lower margins are likely to chisel away their profitability factor.
So going into this week which is full of firecrackers in terms of economic data and earnings, the focus will be if we are going to see the US equity markets continue to march higher. Traders do know that US equity markets have scored decent gains and this was the pattern that we experienced last year as well. So profit-taking is on their mind as the threat of recession taking place in the US is real. Virtually every day, we are hearing from US corporates that companies are actually reducing their headcounts to survive better in challenging times.
In terms of economic data, China is going to be mainly closed for the Lunar holiday period. Something interesting to watch here will be the number of covid cases as Beijing still very much wants to stick to its recent policies, which are focused on dismantling its zero covid policy. On the economic docket, the US GDP q/q comes out on Thursday which will be closely watched by traders. Over in the UK, the Flash manufacturing and services numbers are coming out on Tuesday. The data will be not only watched by traders and investors but also by the BOE as well.
On the earnings front, we will have nearly 40% of the Dow companies releasing their earnings this week which will give investors further insight into their strategies and how they are going to weather inflation and interest rates. Some of the big names which will be reporting their earnings this week are Microsoft, IBM, and Tesla.
US Stock Market
The Dow Jones Industrial Average finished the day at 33,375.49 with an increase of 330.93 points, or 1%, while the S&P 500 soared further on Friday and reached 3,972.61, an increase of 1.89%. Both indexes ended a losing streak of three consecutive days. Meanwhile, the Nasdaq Composite Index finished the day at 11,140.43, reflecting a gain of 2.66% thanks to gains made by Netflix and Alphabet.
In addition, the Nasdaq had a gain of 0.55% for the week, making this the third week in a row of positive returns. This makes it the week’s top performer. The Dow Jones Industrial Average closed the week with a loss of 2.70 percent, while the Standard & Poor’s 500 Index had a loss of 0.66 percent; both indexes ended two-week winning streaks. There has not been a single major average that has dropped into negative territory this year.
The main focus is the relationship between the Bitcoin price and the equity markets. Bitcoin has a strong positive correlation with the risk-on factors, and it has been moving higher as the equity markets scored more gains. The big question is if it continues to trade higher as cracks have started to show in the risk-on rally. Traders may back away from supporting riskier assets this week, and the comments from the Fed officials have indicated that the Fed doesn’t seem to be in a rush to end its ultra-hawkish monetary policy.
In terms of the price level, traders are focused on two price levels. Firstly, the resistance of 25K. Followed by that is the resistance of 30K. Secondly, the support is at a 20K price level. If we see the price breaking above their price points, only then are we likely to see another trend forming.
The OPEC cartel will be holding a meeting next week about their supply. This is likely to keep traders on edge this week as well as we usually do begin to hear some rumours coming out well ahead of the meeting. On the fundamental side, things do not necessarily look that rosy as recession remains likely to take place in the biggest economy in the world.
But for now, traders are optimistic about the Chinese demand reviving from its miserable level. The hope is that it will continue to become better as economic activity returns to its normal level.