The S&P 500 rose by 0.33% on Monday as investors turned their attention to the latest batch of corporate earnings results. The Dow Jones Industrial Average also gained by 0.3%, while the Nasdaq Composite added 0.28%. As earnings season continues, investors are closely monitoring the results to gauge the health of corporate America.
State Street and Charles Schwab reported their earnings results before the bell, with Schwab’s shares rising by 3.9% despite a decline in deposits. However, State Street fell by 9.2% after missing estimates on the top and bottom lines. The financial sector is under particular scrutiny this earnings season following Silicon Valley Bank’s collapse last month, which led to a liquidity crisis and affected the broader sector.
The S&P’s communication services sector slumped by 1.3%, with declines from tech giants Alphabet, Netflix, and Meta Platforms leading the downside. Google’s parent company, Alphabet, fell by more than 2% as reports surfaced that Samsung is considering making Bing its default search engine.
Corporate earnings got off to a positive start last week as banking giants Wells Fargo and JPMorgan Chase beat expectations. Bank of America data shows that companies are hanging on despite inflation and higher rates, with 90% of the names that reported during week one topping EPS estimates. However, Stovall advises against drawing overall conclusions as reports from health care and communication services, which are expected to see double-digit year-over-year declines, are still pending.
The reporting period for financial companies continues this week with results from Bank of America, Goldman Sachs, and Morgan Stanley. Outside of financials, reports from electric vehicle heavyweight Tesla, IBM, and Netflix are also due out. Investors are waiting with bated breath to see how these reports will shape the market’s direction moving forward.
On Monday, the overall market saw a positive price change of 0.33%. The Real Estate sector had the highest increase in price with 2.23%, followed by Financials at 1.13%, and Industrials at 0.79%. Consumer Discretionary, Consumer Staples, and Materials all had moderate increases in price, with gains ranging from 0.59% to 0.68%. The Utilities sector had a slightly lower increase of 0.57%, while the Information Technology sector had the smallest increase at 0.39%. The Health Care sector experienced a slight decrease in the price of 0.10%, while both the Communication Services and Energy sectors saw a decrease in the price of 1.27%.
Overall, the market had a positive day with most sectors seeing an increase in price. Real Estate, Financials, and Industrials had the highest gains, while Communication Services and Energy saw the largest declines. The Health Care sector experienced a slight decrease in price, while the Information Technology sector had a small increase.
Major Pair Movement
On Monday, sterling fell 0.23%, breaching support at 1.2370. If this week’s key UK data are underwhelming and there is a close below that level, it could result in half of the March-February risk-off rise at 1.2175 being tested.
Following an unexpected increase in the New York Fed’s Empire State manufacturing gauge, the dollar index continued to rebound from its low on Friday, leading to an increase in Treasury yields against bunds, gilts, and JGBs. While the U.S. economic data has been mixed, the rise in core CPI to 5.6% in March and the low jobless rate have given strength to Fed hawks. It is anticipated that there will be another 25bp Fed hike in May or June, with current pricing of rates in Q3 being projected to remain high.
As a result of the slide in 2-year bund-Treasury yields spread by 7bp, EUR/USD fell 0.56%, with the next support being the rising 21-day moving average at 1.0880. USD/JPY rose 0.51% and is close to 61.8% of its March slide at 134.75, with possible hurdles at 136. The yen is becoming increasingly vulnerable to Treasury yield increases as 10-year JGB yields have risen back up to the BoJ’s 0.5% yield curve control cap, and Governor Ueda says that any policy shifts will take time.
EUR/USD (4 Hours)
The EUR/USD experienced its worst day in a month on Monday, losing over 50 pips and hitting a low of 1.0908 before rebounding to 1.0930. The Euro was the weakest among major currencies due to a stronger US Dollar, which was boosted by positive economic data from the US. The Empire Manufacturing Index rose unexpectedly from -24.6 in March to 10.8 in April, well above the market consensus of -18. The data strengthened expectations for a Federal Reserve (Fed) rate hike at the May 2-3 meeting, with the odds at 88%, according to the CME FedWatch Tool.
Despite higher Euro Zone bond yields, the Euro lost ground against its G10 rivals, including the US Dollar. European Central Bank (ECB) policymaker Martins Kazaks, who is considered a hawk, suggested the ECB could make a 25 or 50-basis point move in May. On Tuesday, the German ZEW Survey is expected, with the Current Situation Index predicted to have improved to -40 from -46.5 and the Economic Sentiment to 15.1 from 13. ECB’s Frank Elderson is also scheduled to deliver a speech.
Looking at the technical analysis, on Monday the EUR/USD experienced a significant decline, breaking below our support level at 1.0962 and causing the lower band of the Bollinger band to be pushed even lower. The next support level is now at 1.0921, and we expect the market to consolidate with the possibility of an upward move. The RSI is currently at a level of 40.
Resistance: 1.0974, 1.1026
Support: 1.0921, 1.0866
XAU/USD (4 Hours)
Gold prices started the week on a negative note, with XAU/USD hovering around $1,990 per troy ounce, after dropping to $1,981.16 at the beginning of the American session. The US Dollar gained strength, extending its Friday rally amid increasing risk-aversion. Although the Greenback’s advance pared during European trading hours, it bounced back due to persistent negative sentiment that kept US stock indexes in the red.
Market concerns focused on economic growth and the likelihood that the United States Federal Reserve (Fed) may decide to extend the tightening cycle beyond May. Last week’s US economic data came in weaker than expected, raising concerns about a possible recession before the end of the year. Additionally, a couple of Fed officials expressed hawkish views that suggest the central bank may not be finished tightening yet.
Rising US Treasury yields also provided further support to the US Dollar, with the 10-year Treasury note yields standing at 3.59%, up 7 basis points (bps) on the day, while the 2-year note offers 4.20%, up 10 bps.
Looking at the technical analysis, the XAU/USD is currently in a consolidation phase between our established support and resistance levels. The Bollinger band is expanding, suggesting that there may be potential for further movement. Our key support level remains at $1,990 while our resistance level is set at $2,005. The RSI is hovering around the 40 levels, indicating the potential for additional downward pressure.
Resistance: $2,005, $2,017
Support: $1,990, $1,984
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