Global stocks on Friday declined as investors looked to avoid “weekend risk”, mainly due to political tension. US, European and Asian stocks fell to a lower price, with only the Dow Jones holding onto gains. The Dow Jones outperformed other indices due to the quarterly earnings release from United Health Group and J.P. Morgan. Both companies saw earnings and revenue higher than Wall Street’s expectations. As a result, both stocks rose in value but are trading lower during this morning’s Asian session.
Investors this week will mainly focus on comments from the Federal Open Market Committee members. Statements, speeches and press conferences will guide the Fed’s intentions for the next two committee meetings and rate decisions. Investors continue to believe another interest rate hike is not likely, regardless of inflation reading higher than expectations. According to many members of the FOMC, higher bond yields have resulted in mortgage rates rising and are tackling inflation without a hike. The US inflation rate read 3.7%, rather than declining to 3.6%. However, economists had previously advised inflation to read a minimum of 3.8% for another interest rate hike to be seriously considered. The main concern for investors was the producer inflation rate, which read 0.5%, notably higher than expectations. This indicates inflation will be removed above the 2% target over the next three months.
A negative factor for the stock market is the rise in the price of Crude Oil, the US Dollar and US Bond yields. As a result, US equities become more expensive for foreign investors, inflation obtains further upward pressure, and the cost of debt also rises. As a result, European indices, including the German DAX and the French CAC, are trading lower. In addition to this, Asian indices, such as the NIKKEI225, are trading 0.72% lower, and the Hang Seng is 0.85% lower.
NASDAQ – Investors Turn to Tesla’s QER
The NASDAQ opened the week with a bullish price gap but is already returning to Friday’s price close. The NASDAQ’s downward price action is gaining momentum after the opening of the European Cash Open and continues to form intraday downward trend patterns. The index is creating its third bearish impulse wave and has received bearish signals from the retracement, quickly losing upward momentum.
Technical analysts are advising the price action is currently indicating a correction back to the previous price range between $14,663 and $14,884. In addition to this, fundamental analysis shows a downward price movement. The more expensive Dollar, higher bond yields, and higher energy prices will likely affect the NASDAQ negatively. The US Dollar Index is trading 0.15% lower this morning but saw significant gains over the past three sessions. If the US Dollar Index rises above 106.60, the stock market can again come under pressure. In addition, the price of Crude Oil has risen almost 5% since last Thursday, which can cause upward inflation pressure.
A negative factor for the NASDAQ was the lack of upward support from the quarterly earnings report, which the Dow Jones obtained on Friday. Neither the United Health Group, Citi Group and JP Morgan, which announced higher-than-expected earnings, are components within the NASDAQ. Only one of the NASDAQ’s top ten influential stocks held onto previous gains, and the top nine influential stocks depreciated on Friday. On Friday, of the 100 stocks within the NASDAQ, only 30% rose in value, and only 25 rose more than 0.30%. The stocks within the “top ten” which saw significant declines were:
NVIDIA – 4th highest weight within the index – declining 3.16% on Friday
Meta Platforms – 5th highest weight within the index – declining 2.92% on Friday
Tesla – 8th highest weight within the index – declining 2.99% on Friday
Investors will be terming their attention to European equities to indicate risk sentiment within the global economy. So far, the global stock market performance suggests an apparent “risk-off sentiment” amongst investors. A significant factor for the NASDAQ will be Wednesday’s Quarterly Earnings Report from Tesla. Tesla holds a weight of 3.16% and is the 8th most influential stock. In the last quarter, the company announced earnings 10% higher than expectations and revenue 0.80% higher. However, the stock over the past month has declined 5.35%. Analysts expect the upcoming Quarterly Earnings Report to be worse than the previous quarter. The Earnings Per Share is believed to fall from $0.82 to $0.74, and revenue to fall to $24.22 billion. However, if the figures are higher than expected, the stock can potentially rise and significantly support the NASDAQ.
NASDAQ 30-Minute Chart on October 16th
USD/JPY – Global Risk-Off Sentiment
The USD/JPY was the only pair which did not see any significant Dollar gains towards the end of last week. However, when analysing the price action, the USD/JPY is still forming nothing more than a retracement and continues to see bullish solid impulse waves at times. The price of the USD/JPY is trading higher this morning, but the US Dollar Index is slightly lower. If the Dollar index rises, further bullish price action becomes more likely. Particularly if the price of the exchange increases above 149.610 due to the global “risk-off sentiment”. The Japanese Yen is declining in value against most of the currency market during this morning’s Asian session.
The global political tensions and lower risk sentiment have supported the Dollar. In addition, the inflation rate has not indicated another hike but has reconfirmed that interest rates will not come down any time soon. The issue of another interest rate increase this year has not been resolved: at the moment, among the key members of the regulator, Jerome Powell, Christopher Waller, Neel Kashkari, Laurie Logan, and Thomas Barkin are in favour of tightening monetary policy, and they are opposed by Patrick Harker, Rafael Bostic, and Lisa Cook. The US will release the Empire State Manufacturing Index this afternoon, and FOMC member Harker will speak at a convention. If the Empire State Index reads higher, the Dollar can rise in the short term. However, if Mr. Harker takes a hawkish stance, the Dollar potentially can witness support in the longer term.
USD/JPY 20-Minute Chart on October 16th
Summary:
- The global stock market performance indicates investors have a low risk appetite. However, the banking sector confirms better-than-expected earnings and revenue.
- The more expensive Dollar and higher bond yields can negatively affect the NASDAQ if the current trend continues throughout the week. Investors will closely monitor statements and speeches from Federal Open Market Committee members.
- On Friday, 30% of the NASDAQ rose in value, and only 25% saw gains above 0.30%. The nine stocks holding the highest percentage within the fund all depreciated. This includes NVIDIA, Tesla and Meta.
- The US Dollar Index is trading slightly lower this morning but has risen in value over the past three days due to higher inflation data.
