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Daily market analysis

Stocks Modestly Rise as Earnings Season Nears End with Positive July Performance

August 1, 2023

Stocks on Wall Street experienced a modest rise on Monday, kickstarting a busy earnings week and concluding a winning month. The Dow Jones Industrial Average climbed 0.28% to close at 35,559.53, while the S&P 500 and Nasdaq Composite registered slight gains of 0.15% and 0.21%, respectively. July’s positive performance was notable, with the S&P 500 recording its fifth consecutive positive month for the first time since August 2021, and the Nasdaq Composite marking its fifth straight winning month since April 2021. This bullish trend was attributed to investors’ growing optimism about a soft landing scenario, supported by strong economic data indicating ongoing labor market strength and cooling inflation. Better-than-expected second-quarter earnings also contributed to the market’s rally throughout the month.

Looking ahead, market participants are closely monitoring the earnings reports of tech giants Amazon and Apple, as their performance could significantly impact the market’s trajectory. Positive guidance from these companies may propel the bull market further and sustain momentum into the fall. Alongside earnings, investor focus remains on the upcoming jobs report, with economists projecting the U.S. economy to have added 200,000 jobs in July, following a 209,000 increase in nonfarm payrolls in June. These factors, along with the Federal Reserve’s recent rate hike, will continue to influence investors’ decisions and shape the market’s direction as the earnings season nears its end.

Data by Bloomberg

On Monday, the overall stock market showed a modest increase of 0.15% across all sectors. Energy stocks saw the most significant gain, surging by 2.00%, followed by real estate with a rise of 0.70%. The consumer discretionary and materials sectors also performed well, each recording gains of 0.56% and 0.52%, respectively. Financials and industrials showed moderate growth with increases of 0.44% and 0.23%, while information technology and utilities experienced more modest gains at 0.13% and 0.03%, respectively. On the other hand, communication services and consumer staples sectors experienced slight declines, both decreasing by -0.03% and -0.46%, respectively. The health care sector saw the most significant decrease, falling by -0.79%.

Major Pair Movement

On Monday, the dollar slightly declined against the euro and sterling, as these currencies rebounded from July lows following below-forecast U.S. core PCE and ECI data, which suggested a lower likelihood of further rate hikes by the Federal Reserve. Despite Chair Jerome Powell’s emphasis on data dependence, rate cuts are deemed unlikely this year. The yen weakened for a second day against most other currencies, driven by yen longs taken before the Bank of Japan’s (BoJ) meeting, where the policy shift underwhelmed expectations. The BoJ’s purchase of 10-year Japanese Government Bonds (JGBs) at 60bps, closer to its prior 50bp cap than the new hard cap at 100bps, led to renewed quantitative easing and favored the yen as a funding currency.

In the foreign exchange market, USD/JPY, EUR/JPY, GBP/JPY, and AUD/JPY all rose, while USD/CNH fell slightly as investors remained cautious about China’s renewed growth prospects. Bond yields, including Bunds, gilts, and Treasury yields, initially rose due to JGB yields’ post-BoJ meeting surge, but they later drifted lower as the month-end and key U.S. data approached.

Picks of the Day Analysis

EUR/USD (4 Hours)

EUR/USD Pulls Back Below 1.1000 Despite Eurozone’s Return to Growth

On Monday, the EUR/USD currency pair failed to maintain its gains and retreated, falling below the key level of 1.1000. The Euro initially gained momentum after Eurozone economic data revealed growth in the second quarter, but it couldn’t reclaim the 20-day Simple Moving Average (SMA) and eventually weakened. Eurostat reported that the GDP grew by 0.3% in Q2, surpassing market consensus expectations of 0.2%, while headline inflation decreased from 5.5% to 5.3% YoY in line with predictions. However, the core inflation rate remained higher than expected at 5.5%. In contrast, German retail sales disappointed, showing a 0.8% drop in June against a forecasted 0.2% decline.

The mixed data released for the European Central Bank (ECB) implies no significant shifts in monetary policy, as inflation slowed while the core rate remained elevated, and GDP experienced marginal growth. Market pricing currently suggests that the likelihood of another rate hike during the September meeting is below 40%. In the US, the Dollar displayed a mixed performance on Monday, rising against the Euro, Pound, and Yen, but weakening against the Australian Dollar, Canadian Dollar, and New Zealand Dollar, possibly indicating some risk appetite and a rebound in commodity prices. This week, market participants await a series of labor market data releases, including JOLTS Job Openings, ADP, Jobless Claims, and Nonfarm Payrolls, which could influence the currency’s movements.

Chart EURUSD by TradingView

According to technical analysis, the EUR/USD falls on Monday and reached the middle band of the Bollinger Bands. Currently, the price is moving just below the middle band of the Bollinger Bands indicating there’s a potential lower movement to the lower band. The Relative Strength Index (RSI) currently stands at 39, indicating that the EUR/USD is starting to enter the bearish moment.

Resistance: 1.1038, 1.1121

Support: 1.0915, 1.0839

XAU/USD (4 Hours)

XAU/USD Gains Momentum as Optimism Weakens US Dollar Amid Easing Inflation Signs

At the beginning of the week, XAU/USD, the gold-to-dollar exchange rate, rose higher as investor optimism led to a shift away from the US Dollar. The precious metal traded around $1,972, recovering most of its losses inspired by the European Central Bank (ECB), and further gained momentum with Wall Street’s opening as stocks maintained a positive tone from the previous week, supported by signs of easing global inflation.

Following the release of German and US inflation-related data on Friday, the Eurozone reported a decline of 0.1% MoM in July’s Harmonized Index of Consumer Prices (HICP) according to preliminary estimates, with the annual figure easing to 5.3% from the previous 5.5%. The upbeat market sentiment exerted pressure on the US Dollar, causing it to lose ground unevenly against all major rivals, with commodity-linked currencies performing the best and European counterparts performing the worst. As market participants await American employment-related figures, the focus remains on upcoming reports such as June JOLTS Job Openings, the ADP survey on private job creation, and the July Nonfarm Payrolls report (NFP) expected to show 200K new jobs created in the month.

Chart XAUUSD by TradingView

According to technical analysis, the XAU/USD rises slightly on Monday and moves above the middle band of the Bollinger Bands. Currently, the price is slightly above the middle band, indicating that there is still potential for Gold to move even higher. The Relative Strength Index (RSI) currently stands at 50, which indicates that the XAU/USD pair is moving back to the neutral stance.

Resistance: $1,979, $1,999

Support: $1,953, $1,938

Economic Data

CurrencyDataTime (GMT + 8)Forecast
AUDCash Rate12:304.35%
AUDRBA Rate Statement12:30 
USDISM Manufacturing PMI22:00 46.9
USDJOLTS Job Openings22:00 9.61M

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