Daily Market Analysis - TUESDAY JULY 11, 2023

١١ يوليو ٢٠٢٣

Key News:

UK - Employment Change 3M/3M (MoM) (May)
UK - Unemployment Rate (May)
Eurozone - ZEW Economic Sentiment (Jul)
USA - FOMC Member Bullard Speaks
USA - EIA Short-Term Energy Outlook

As the trading session unfolded on Monday evening, US stock futures exhibited a relatively limited range, maintaining a tight grip after three consecutive days of decline in major benchmark indices. Market participants eagerly anticipated the release of crucial inflation data and upcoming earnings reports, which held significant implications for the market trajectory.

During the session, mega-cap stocks failed to deliver substantial support. Tesla, a prominent player in the electric vehicle industry, experienced a decline of up to 2% in its stock value, reflecting the prevailing cautious sentiment. Similarly, Amazon, a global e-commerce behemoth, concluded the session with a decrease of over 2%, just ahead of its highly anticipated Prime Day event. Over the years, Prime Day has evolved into a widely recognized shopping extravaganza across various industries, serving as an important indicator of the willingness of US consumers to increase their online spending and their overall economic sentiment. The performance of Amazon's stock during this event provides valuable insights into the health of the e-commerce sector and consumer spending patterns.


TSLA stock daily chart


AMZN stock daily chart

In contrast to the aforementioned declines, Meta, formerly known as Facebook, witnessed a notable rise of 1.23% in its stock price during the session. This upward movement can be attributed to the success of its recently launched platform, Threads. Since its release, Threads has rapidly gained traction, accumulating an impressive user base of 100 million individuals. The platform's popularity and positive reception among users have contributed to the positive sentiment surrounding Meta's stock.

Adding to the favorable outlook for Meta, internet traffic data provided by Cloudflare revealed a substantial decrease in Twitter usage. This decline in Twitter's popularity further bolstered the positive sentiment surrounding Meta, as it indicates a potential shift in user preferences and a possible migration of users towards Meta's platforms.

Overall, Meta's stock performance during the session reflected the market's positive response to the success of Threads and the perception of a decline in Twitter's popularity, positioning Meta as a favorable investment option in the tech sector.


META stock daily chart

Yesterday, there was a notable increase in the amount of money invested in treasuries, causing the US 2-year yield to decrease by around 10 basis points. Surprisingly, even though there were predictions of a tough approach by the Federal Reserve, the US dollar unexpectedly plummeted below its long-standing upward trend line. Consequently, individuals with a pessimistic view on the dollar are now focusing on reaching the 100 level as their next objective.


USD/JPY daily chart

The dollar-yen pair experienced a significant drop below the 141 level and is now approaching the 50-day moving average (DMA) support, located around the 140 level. On the other hand, the EUR/USD pair rallied above the 1.10 mark, disregarding a sentiment index that suggests a faster deterioration in the Eurozone during July. The upcoming release of the German Consumer Price Index (CPI) is expected to confirm a recent increase in inflation, primarily driven by the positive impact of low-priced train tickets distributed by the government last year. However, the ZEW index is anticipated to reflect a worsening sentiment. While higher German inflation generally benefits the euro, it remains uncertain how much significance Christine Lagarde and her colleagues at the European Central Bank (ECB) attach to sentiment indicators.


EUR/USD daily chart

Despite the expectations of a more aggressive stance from the Federal Reserve, the US dollar continues to weaken. Simultaneously, the European Central Bank (ECB) is also expected to adopt a more hawkish approach. These factors combined could potentially lead to a further rise in the EUR/USD pair, with the possibility of reaching the 1.12 level.

Looking ahead to Tuesday, European stock markets are expected to open with gains, taking cues from the positive performance of Wall Street and Asian markets during the previous session. Market participants will closely analyze important data on German inflation and UK unemployment. The optimistic sentiment in Europe can be attributed to the strong finish of Wall Street, where the Dow Jones Industrial Average climbed over 200 points or 0.6%. This surge was influenced by signals indicating that the Federal Reserve was nearing the completion of its interest rate hike cycle for the year.


DJI daily chart

Asian markets saw mostly higher stock prices in early trading on Tuesday, and this positive trend is expected to carry over to European markets as well. The optimism follows comments made by several officials from the US Federal Reserve on Monday, suggesting that interest rates will need to be raised further to address inflation concerns, but also indicating that the tightening cycle is nearing its end.

Throughout the year, concerns have persisted that the Federal Reserve's aggressive measures to control inflation could potentially trigger a recession in the largest global economy, which greatly impacts global growth. These concerns have put pressure on markets worldwide.

In other news, the British pound exhibited a slight weakness after the release of a private sector survey highlighting a slowdown in wage growth and hiring pace in June. While recent data has shown limited evidence of this trend, the upcoming release of figures from the Office for National Statistics (ONS) today may provide further clarity, albeit with a lag.


GBP/USD Daily chart

Approximately a month ago, the UK witnessed a noteworthy development in the April wage numbers, which underscored the challenges faced by the Bank of England. The data revealed a surge in wage growth, reaching a record high of 7.2%, excluding the pandemic period. This significant increase led to a rise in UK 2-year gilt yields, surpassing the peaks observed in October of the previous year, following the ill-fated Kwarteng budget.

The sharp rise in wages in recent months has shed light on the Bank of England's failure to take timely action. Workers, already grappling with financial pressures from various sources, are advocating for larger pay raises to narrow the gap in real wages. The release of May's wage data today is unlikely to indicate a weakening in these upward pressures, as expectations suggest a growth rate of 7.1% for the three-month period ending in May.