Welcome to the Key to Markets preview of the Week Ahead.
5-day performance as of July 28, 2022. 10:00 GMT
In case you missed it…
USD falls as Fed hikes rates by 75bps. The Fed agrees to a second supersized rate hike in as many months. However, the Fed will no longer give guidance, instead taking decisions meeting by meeting.
Alphabet jumps 5% post earnings. Revenue growth fell to the slowest in two years, but Google’s revenue & cloud business performed well, calming fears after Snap’s disappointing ad revenue numbers.
Russia slows gas supply to Europe. Gazprom announced that it would slow gas supply in Nord Stream 1 to just 20% of capacity for “technical reasons”. The EU agrees to cut gas use by 15%.
Lloyds beats profit forecasts. The UK’s largest lender posted pre-tax profits of £3.7 billion in H1, ahead of the £3.2B forecast but down from £3.9B in H1 last year. The share price jumped 4%.
Coinbase faces SEC probe. The SEC is set to investigate whether the platform is offering unregistered securities. The former product manager was also detained for insider trading, and ARK Investment sold out of 1.41M Coinbase shares. The stock trades down 21% after a rough week and is down 60% over the past 3 months.
Microsoft rises on rosy guidance. The tech giant’s earnings missed guidance for the first time since 2016, and revenue missed for the first time since 2020, owing to a strong USD. MSFT guided for double-digit revenue growth in the coming fiscal year.
Barclays falls on profit hit. Barclays takes a £1.9 billion hit from conduct charges relating to a US securities error. Profits fell to £3.7 billion, below the £3.9 billion forecast.
German consumer confidence falls to a record low. Surging food and energy prices sent consumer sentiment tumbling. Germany sits on the cusp of a recession. The DAX falls less than 1% across the week.
US economy slowdown continues in Q2. After recording a contraction of -1.6% annually in Q1, the US economy posted another contraction of 0.9% annually in Q2. The US economy is technically in a recession.
Meta sees troubling Q3. Facebook parent Meta missed earnings and revenue forecasts. The social media giant forecasts its first decline in revenue since it went public.
This week we learnt that Germany’s IFO business expectations index is crashing lower, which according to this chart, means that a contraction in Germany’s GDP is highly likely.
Germany’s economic outlook appears to be worsening by the day amid record inflation, supply chain disruptions and threats of gas rationing. According to the IMF, the eurozone’s largest economy will be the weakest among the G7 this year.
Analysts at Credit Suisse and Deutsche Bank are saying that a recession will last until at least next spring and is starting around now.
“A good decade has ended for Germany — from here on, we’ll be struggling quite a bit for quite some time,” said Dekabank’s Andreas Scheuerle, who predicts a winter recession.
This could keep the EUR and the DAX depressed over the coming months.
The BoE has raised interest rates at each of the past six meetings since December. This week policymakers will need to decide whether to join the big rate hike club and vote for a 50-basis point hike over the 25 basis point rate rise, which it has agreed to at the past 5 meetings. According to the latest Reuters poll, the central bank is expected to stick to a modest 25 bps hike in its battle against 40-year high inflation.
At the last meeting, OPEC+ agreed to stick to the previously agreed and upwardly revised production increase of 648,000 bpd in August. This higher output level is set to end at the end of August. Given rising concerns over the demand outlook as recession risks increase and the 8% fall in oil prices, OPEC+ could well agree to raise output by the previous and lower 342,000 bpd in September.
The RBA raised rates by 50 basis points in the previous meeting and is expected to hike by a further 50 basis points this week. Expectations of a more significant 75 basis point interest rate rise have been scaled back following slightly weaker than expected Q2 headline inflation of 6.1%.
4. Q2 Earnings
US earnings season has so far turned out to be better than feared, and stocks have already priced in much of the bad news. Of the US stocks which have reported so far, 60% have beaten revenue forecasts, and 75% have topped profits estimates. Earnings growth is slowing but not tanking. Looking ahead, earnings from US and UK stocks will continue to pour in. Highlights include, Alibaba HSBC & BP.
5. Non-farm payrolls
The US jobs market has remained resilient, although some of the US economy shows signs of weakness. In June, 372k jobs were added, well above the 250k forecast. In July, 250K jobs are expected to have been added. The data comes after jobless claims have crept higher to an 8-month top and as anecdotal evidence builds of job cuts and hiring freezes.
Economic Calendar Highlights
TA of the major asset classes (Forex – Commodities – Indices…).
EUR/USD (H4 Candlestick Chart)
After the breakout above a bearish trend line, EUR/USD entered a parallel channel formation. The market is moving upward to test the higher end of this channel which is the 1.02 mark. A break and close above this zone (1.02) could lead to a further move to the upside toward the 1.03 mark. A failure in breaking this area could lead to a move lower to 1.01.
GBP/USD (H4 Candlestick Chart)
The British pound broke above a bearish trendline with the help of strong positive momentum demonstrated by a long-bodied up-candle. The market is testing the 1.217 level. If it breaks to the upside, a move higher could be seen toward the next resistance level, the 1.23 mark. A close and a move under 1.194 would end our bullish bias.
USD/JPY (H4 Candlestick Chart)
USD/JPY broke down from a bearish flag formation after the market found sellers near the 61.8% Fibonacci retracement level near 137.5. We would expect to see the price reach the 134.2 mark, which is the price objective implied by the flag pattern. A break over 137 would suggest the pattern objective will not be achieved.
AUD/USD (H4 Candlestick Chart)
The Aussie continued its move higher by posting higher highs and lows where a big-bodied 4-hour bar closed above the 0.698 mark. This indicates that the buyers clearly control the market and could push the price to the upside to test the 0.707 level. A move below 0.692 will offset our bullish trading idea.
USD/CAD (H4 Candlestick Chart)
Loonie continues its move to the downside after moving below the parallel channel for a second time and breaking below the bearish wedge after the price reversed near the 61.8% Fibonacci level. We could see the market continuing its move to the downside toward the 1.272 mark. A close above the 1.294 level would end our bearish bias.
Gold (H4 Candlestick Chart)
Gold reversed and moved higher after breaking out from both the bearish channel and the bullish flag formation. The market currently is sitting near the 1,735 resistance-turned-support, where we expect more buyers to join the uptrend and push the price toward the 1,771 mark. A break below 1,735 would indicate the support has failed to sustain the breakout.
Brent Oil (H4 Candlestick Chart)
Brent crude is trading sideways with 99 and 104 defining the bulk of the range. Since the daily timeframe is trending lower, sellers could push the price again to the downside once the price tests the higher end of this range. If this scenario occurs, Brent Oil could reach the 98 mark. A break above the 104 mark could lead to a trend reversal.
US 500 (H4 Candlestick Chart)
The US500 resumed its move to the upside by breaking the 4,000 mark with the help of a big-bodied bullish candle. The market could retrace the new support level (previously resistance = 4,000) before a new bullish impulsive wave toward the 4,095 mark. A close below the 4,000 mark would imply a deeper pullback, which could test 3940.
Thank you very much for reading – and have a great week trading!