As mentioned during yesterday’s market analysis, the US30 outperformed the US100 for a third consecutive day. The key reasons are the index being priced at a more competitive level and being more exposed to defensive stocks. The Dow Jones rose a further 0.23% before losing momentum towards the end of the US session.
The main drivers of the upward price movement were Microsoft, Goldman Sachs and Home Depot which rose 3.64% between them. The best-performing stock was 3m Co, which rose 1.48%, while the worst performing stock was Caterpillar, which declined 1.36%. The second-best performance was from Home Depot, rising 1.26%. Home Depot management has improved its economic forecasts for the current year: compared to 2022, sales may decrease by 3–4%, while a reduction of 2–5% was previously expected.
The next major earnings report which is due to be released is Salesforce, next Wednesday. The report will be released after the market close and is likely to create further volatility for the US30. Salesforce is the 9th most influential stock within the US30, holding a weight of 4.21%.
Wall Street is expecting Salesforce’s revenue to increase from $8.60 billion in quarter 2 to $8.72 billion in the latest quarter. However, the company’s Earnings Per Share are expected to drop from $2.12 to $2.06. If both the revenue and Earnings Per Share data reads higher than previous expectations, the stock is again likely to experience further bullish momentum. The same applies to the Dow Jones. Salesforce stocks have risen 9.61% over the past month.
This afternoon, the US will release the latest month’s Purchasing Managers’ Index for both the manufacturing and services industries. The ideal scenario for the Dow Jones would be for the PMI release to read as expected. This would indicate neither significant growth, which may prompt another hike, nor any significant contraction.
A slight concern for investors is the higher bond yields which has risen 0.047% this morning. In addition to this, the CME’s FedWatch Tool continues to indicate some market participants continue to believe one last hike is possible. If the price drops below $35,297.52, price action will point to a possible downward correction for the day. However, if the price increases above $35,340 and $35,354, the index will witness renewed buy signals.
The EURGBP exchange dropped to its lowest level since November 7th as the UK’s latest PMI figures indicate an improved economic outlook. However, the PMI data from France and Germany were less positive and continue to paint an uncertain picture. Though this morning the Euro is attempting to correct and regain lost ground from Thursday, the fundamental data indicate a strengthening in the Pound. Therefore, if the exchange rate drops below 0.87004, price action would signal an intra-day bearish impulse wave.
Another reason to believe the Euro may witness pressure going forward is due to the latest comments from the European Central Bank. The ECB is recording the first signs of pressure within the banking sector which can be seen in the non-performing loans sector. The indicator for which was previously kept at historical lows. The regulator’s semi-annual financial stability report notes that weak economic prospects amid prolonged “hawkish” monetary policy and the consequences of high inflation are putting pressure on the ability of households and businesses to service debt obligations.
Lending institutions are currently benefiting from rising interest rates but are facing deteriorating asset quality and lower lending volumes. For this reason, economists can see the current Main Refinancing Rate is applying adequate pressure and a further hike is unlikely. According to economists, the ECB is least likely to increase interest rates further.
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