Markets Week Ahead: Nasdaq 100, Dow Jones, US Dollar, Gold, Debt Ceiling, NFPs, AI Frenzy
During the past week, there was a general decline in global stock market sentiment, with limited instances of positive movement. On Wall Street, the Nasdaq Composite, which is heavily focused on technology companies, experienced significant growth of 2.51%, while the Dow Jones Industrial Average, which comprises more established blue-chip firms, declined by -1%. In Europe, both the DAX 40 and FTSE 100 fell by -1.79% and -1.67%, respectively. In Asia, a substantial decline of nearly 5% was observed in the Hang Seng Index.
Last week’s stock market gains were largely due to the technology sector, which was further boosted by the exceptional earnings report from Nvidia Corp. This report emphasized the strong demand for AI technology and projected earnings that exceeded forecasts, leading to a significant increase in the company’s stock price by over 25%. This effect also had a positive impact on other tech companies, such as Marvell Technology, whose stock rose by 32% after disclosing that revenues from AI would double by 2024.
Upon closer examination of the stock market, it becomes apparent that the gains have been distributed unequally. The top seven companies in the S&P 500 have experienced an average increase of over 40% since December, while the S&P 500 as a whole has only risen by approximately 10%. The remaining 493 companies have only seen an average increase of 1%. Despite this uneven distribution, recent economic data has consistently displayed robustness.
The rapid exclusion of rate cuts from the Federal Reserve by financial markets has been observed this year. In July, a 25 basis point rate hike is anticipated. Despite a constrained labor market, the most recent PCE core deflator – the preferred inflation measure of the Fed – unexpectedly displayed an increase. This resulted in a surge in the US Dollar and a continued decline in gold prices.
Looking ahead, there are two significant event risks that have captured the attention of market participants. The first pertains to the ongoing negotiations surrounding the US debt ceiling. According to recent statements by the US Treasury, measures to limit debt will expire on June 5th. Although market sentiment has been buoyed by optimism regarding a potential deal, current indications suggest that investors may not be fully appreciating the potential monetary policy implications of such an agreement, as well as strong economic data. This gap in understanding could pave the way for increased volatility in the future.
The upcoming week’s noteworthy data includes Chinese manufacturing PMI, which is indicative of global growth, Canadian GDP data for USD/CAD, and Euro Area inflation for EUR/USD. What additional developments can be expected in the markets during the following week?
How Markets Performed – Week of 5/22
Forecasts:
The upcoming week for the British Pound will be influenced by both UK interest rates and US economic data. The market for UK government bonds, also known as gilts, is experiencing a difficult period following the release of inflation data. As a result, yields have risen as investors anticipate further rate hikes from the Bank of England.
The current focus in the Australian dollar market is on the dominance of the US dollar. In light of recent inflation data, the UK government bond market, also known as gilts, has experienced a difficult time as yields have increased due to expectations of additional rate hikes by the Bank of England.
The upcoming week is of significant importance in the Euro’s bid for recovery, with a myriad of events risk factors at play. While the potential for a deal on the debt ceiling looms large and could overshadow any developments in Euro Area inflation, there is speculation that a retracement in the EUR/USD may be warranted.
The current trend of rising real yields and strengthening U.S. dollar, driven by the recent hawkish adjustments in the Federal Reserve’s policy outlook, poses a significant risk for gold prices as they may experience a further downward correction in the short term.
The weekly perspective of the US Dollar in terms of its performance is being analyzed in light of the current economic climate. Over the course of three weeks, the currency has experienced a 3 percent increase, due in part to discouraging economic data that has led investors to reconsider their bets on a potential rate cut by the Federal Reserve. The upcoming focus will be on the US non-farm payrolls report.
The S&P 500 and Nasdaq indices are expected to experience continued momentum in the upcoming week due to increased optimism regarding a potential agreement to increase the US debt ceiling. It is important to consider the significant levels to monitor in both the S&P 500 and Nasdaq 100 index.
