US Market Indices
US equities recorded strong gains the S&P 500 recorded its best week since June and hit its best intraday level in two months. Nasdaq 100 climbs 8.8% in the best weekly gain since Nov 2020. Gained 9.4% in best 2 days gain since 2008.
Dow jones climb 4.5% last week. The event of the week was Thursday morning’s release of the US consumer price data for October.
The headline CPI rose 0.4% in October, less than consensus expectations of 0.6% and bringing the yoy increase to 7.7%, the slowest increase since January. The yoy core reading fell back to 6.3% from a 40-year high of 6.6% in September.
Traders lowered the odds of another three-quarter-point rate boost in December after the data. Investors bet that the Fed will pivot away from tightening monetary policy and shift from interest-rate increases to rate cuts as early as next year.
Current market expectations for the path of the Fed Funds Rate is 50 basis points in December 2022 to reach 4.25%-4.50%, 25 basis points in Feb 2023, and another 25 basis points in Mar 2023 to peak around 4.75%-5.00% then Pause, and the Fed will begin Rate cuts start in Nov 2023, continue in 2024.
Morgan Stanley’s Mike Wilson, a well-known stock market skeptic who correctly predicted this year’s slump, says the recent rally in US equities isn’t finished and should keep running over the coming weeks. “It’s going to remain volatile,” Wilson cautioned. “It’s still a bear market so it could rip you apart.”
The stock market’s short-term fate is riding on something that’s been a major boon for equities for more than 70 years: US midterm elections. The fourth quarter and year after the mid-term elections has historically been the stock market’s strongest stretch during the four-year presidential cycle.
With polls showing that Democrats could lose control of the US House or the Senate, stocks may get a further lift from another traditionally friendly factor: a divided government that would virtually doom any major legislation that could shake up the economic outlook.
The fourth quarter of midterm years and the following two quarters historically have been the strongest, delivering average gains of 6.6%, 7.4%, and 4.8% respectively for the S&P 500 since 1950, according to Carson Investment Research. A year after the midterms, the S&P 500 was up 15% on average.
FOREX Market
Let us call this week the “Week of the Shift” as we witnessed the strongest 2022 currency lose its battle for the first time in almost 1 year.
The U.S. dollar index lost almost 4% of its value against the 7 other major currencies last week, mostly due to the inflation figures released.
Inflation figures last week, namely the consumer price index fell 0.5% (Figure 1) since the previous month, shocking the markets. This drop came a week after the chair of the Fed Jerome Powell announced that the Fed will start easing its monetary approach to fighting inflation.
.png)
Figure 1: Source: Refinitiv Eikon, U.S. inflation rate
Consequently, the EUR/USD pair gained 4.5%, while GBP/USD witnessed an increase of 4.12%, and USD/JPY retraced from the 150 psychological level decreasing to 138.8.
Taking a deeper look at the dollar index (Figure 2), we observe that the price broke below the 100SMA (Orange color) for the first time, in almost 1 year. A possible retracement might occur in this week backed by the PPI release; however, our next strongest support is the 105 level.
.png)
Figure 2: Source, TradingView, DXY dollar index Daily TF
This week our main focus will be on the producer price index set to be released on Tuesday at 17:30 GMT+4 timing. The Bureau of Labor Statistics expects it to increase by 0.5% for this month, which might put further pressure on inflation, consequently, affecting the Fed’s rate decision in December.
U.S. Indicators
.png)
Figure 3: Inflation, interest rates, and Unemployment in the U.S.
Inflation in the United States rose during the month of October by 7.7%, after expectations had indicated a rise of 7.9%, and this is considered to be the fourth consecutive decline, according to the Fed’s statements at its last meeting that the economic data will determine the pace of raising interest rates.
On the other hand, it is worth to be noted that another inflation reading for the month of November will be released a day before the Fed meeting, which will signal whether inflation will actually continue to decline.
The attached chart shows us how raising interest rates had a positive effect on reducing inflation rates, However, the labor market has not been affected by the Fed's policy, whereby, unemployment rates have been stable since the Fed started raising interest rates.
Equities
To Date, around 91% of S&P500 reported their third-quarter earnings, from the S&P500, 69% reported positive EPS surprises which is below the 5-year average of 77% and below the 10- year average of 73%, and 71% reported positive revenue which is above the 5- year average of 69% and above the 10-year average of 62%.
All eleven sectors reported yearly revenue growth led by the energy sector of more than 47.1%, followed by the utility sector, consumer discretionary sector, and real estate sector.
For example, CVS Health posted $2.09 EPS versus an expected EPS of $1.99, and revenues of $81.16B increasing by 10% y-o-y versus an expected revenue of $76.75B.
PayPal posted earnings per share of $1.08 versus the expected EPS of $0.96, and revenues of $6.85B equivalent to a y-o-y growth of 10.47% versus expected revenues of $6.82B.
Occidental Petroleum Corporation (OXY) posted earnings per share of $2.48 equivalent to 180% y-o-y versus an expected EPS of 2.45, and revenues of $9.5B equivalent to 40% y-o-y growth versus expectations of $9.05B.
Companies are laying off workers to cope with the increasing expenses
Meta Platforms Inc. (META) laid off 11,000 of employees mainly in technology and business roles as the company has announced that it will cease producing smart displays and smartwatches.
Some of the Upcoming Earnings during the upcoming week (14-18th November)
|
Stock |
Current EPS |
Expected EPS |
Current Revenues |
Expected Revenues |
|
Tyson Foods, Inc. (TSN) |
$1.94 |
$1.72 |
$13.5B |
$13.49B |
|
Walmart Inc. (WMT) |
$1.77 |
$1.32 |
$152.86B |
$146.8B |
|
NVIDIA Corporation (NVDA) |
$0.51 |
$0.7 |
$6.7B |
$5.82B |
|
CISCO Systems Inc. (CSCO) |
$0.83 |
$0.73 |
$13.1B |
$13.3B |
|
Palo Alto Networks Inc. (PANW) |
$0.8 |
$0.69 |
$1.55B |
$1.55B |
|
Foot Locker Inc. (FL) |
$1.1 |
$1.14 |
$2.06B |
$2.1B |
GOLD
.png)
Figure 4 : Metatrader CFI, Gold
Gold rose last week by 8.5%, and this is the highest weekly rise since March.
This rise came as a result of the decline of the US dollar after US inflation data for the month of October indicated a slowdown in inflation for the fourth consecutive month which gave optimism to investors that the US Federal Reserve may start discussing slowing the interest rate hike in the December meeting.
Gold succeeded in penetrating the levels near 1730 dollars per ounce, and currently, the levels near 1800 dollars per ounce are very important levels, we will monitor the ability of gold to target it.
Commodities
.png)
Figure 5: TradingView, WTI
WTI closed last week in the negative zone at -3.82% for a 6th consecutive week in a trading range, WTI traded below $93 retesting the support zone at $83, pivoting around the 50-exponential moving average. Oil’s trading psychology is affected by political and economic announcements with opposite objectives.
Regarding the calls on NOPEC, the president, and chief executive of the industry lobby group the American Petroleum Institute said in comments on the latest developments around the NOPEC bill, it “would create further instability in the marketplace and exacerbate existing challenges in international commerce. Such legislation would be unhelpful in any market condition past, present or future.
On the other hand, the US release of 15 million barrels from its SPR in parallel with the US mid-term elections and China’s Zero-Covid policy easing supported WTI to maintain sustainability within the trading range
.png)
Figure 6: TradingView, Natural Gas
US natural gas declined 13.7% closing at $6.10 ending up an upward correction that was supposed to be long-lived after 8 weeks of continuous declines since September. The Henry Hub spot price fell $1.06 from $4.51 per million British thermal units (MMBtu) last Wednesday to $3.45/MMBtu yesterday, the lowest daily price since December 2021.
As stated by the International Energy Association and data from PointLogic, the average total supply of natural gas fell by 1.5% (1.6 Bcf/d) compared with the previous report week.
Dry natural gas production decreased by 0.6% (0.6 Bcf/d), and average net imports from Canada decreased by 21.5% (1.1 Bcf/d) from last week. Total U.S. consumption of natural gas rose by 2.0% (1.4 Bcf/d) compared with the previous report week, according to data from PointLogic.
Natural gas consumed for power generation climbed by 4.0% (1.2 Bcf/d) week over week. Industrial sector consumption decreased by 0.5% (0.1 Bcf/d) week over week, and in the residential and commercial sectors, consumption increased by 1.7% (0.3 Bcf/d). Natural gas exports to Mexico increased 2.3% (0.1 Bcf/d). Natural gas deliveries to U.S. LNG export facilities (LNG pipeline receipts) averaged 11.5 Bcf/d, or 0.4 Bcf/d lower than last week.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.