A moment of calm in markets before the potential storm
Fawad Razaqzada July 4, 2017 7:04 AM
The US markets will be closed as Americans observance Independence Day. Consequently we are expecting to experience a quiet afternoon session. Today's big moves may have already occurred.
The US markets will be closed as Americans observance Independence Day. Consequently we are expecting to experience a quiet afternoon session. Today's big moves may have already occurred. Overnight's main news was from Australia. Here, retail sales came out stronger than expected. But this failed to underpin the Aussie dollar as the market's focus was on the Reserve Bank of Australia. The RBA was widely expected to have tilted more toward the hawkish side following similar moves from other global central banks. However, it disappointed those expectations in a rate statement which was very similar to its previous one. The disappointment caused the Australian dollar to fall across the board, though the local equity markets rallied. In Europe, Spanish unemployment fell sharply again in June. However, the 98,300 month-over-month drop was still short of expectations of a 120,300 fall. In the UK, the focus was on the construction PMI after we learnt yesterday that activity in the manufacturing sector had weaker last month. As it turned out, activity in the construction also slowed down last month as the PMI printed 54.8 compared to 55.6 last and 55.0 expected.
Plenty to look forward to this week
Looking ahead to the rest of the week, there will be plenty of key economic data to look for forward to. The hat-trick of UK PMIs will conclude on Wednesday with the release of the dominant services sector PMI. If there was a marked deterioration in confidence as a result of the UK's dire political situation and recent terrorist attacks, it will most likely show up in the services sector PMI. Wednesday will also see the release of the FOMC’s last meeting minutes. The minutes are unlikely to cause a major reaction in the markets on Wednesday as several FOMC members have already spoken since that meeting. The preparation for Friday’s US jobs report will begin on Thursday as there will be a couple of leading employment indicators released then: the ADP private sectors payrolls report and the employment component of the ISM non-manufacturing PMI. As well as the key US jobs report, we will also have the latest monthly employment data from Canada on Friday, too. In addition, there will be a speech from the Bank of England’s Mark Carney and some UK data, including manufacturing production and trade figures, to look forward to on the last trading day of the week.
Nasdaq 100 could lead a potential market sell-off
With US technology companies coming under pressure lately and government bond yields rising sharply, and key data coming up later on in the week, this could be the calm before the storm. But even if it is not exactly a storm, at a minimum we are expecting to see heightened volatility in the second half of the week. So, get ready. In the equity markets, one sector that could come under pressure is technology. If tech names do go down further then the tech-heavy Nasdaq 100 could be the index to watch/trade, for the Dow and to a lesser degree the S&P 500 have been supported by the outperformance in the banking and energy sectors, owing to rising yields and firmer oil prices. The higher borrowing costs are seen as being negative for sectors such as technology as it raises their borrowing costs, and could hit consumer demand. The Nasdaq 100 has actually created a possible reversal formation on its monthly chart, creating its first red candlestick formation in eight months. Technically this is more bearish when you consider the monthly RSI being not only overbought but in a state of negative divergence – so the momentum indicator has made a lower high relative to the underlying Nasdaq 100 index. This divergence is typically found at major tops, and the higher the time frame the more significant it becomes.
Source: eSignal and FOREX.com. Please note, this product is not available to US clients
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.