News & Analysis

Tech decline continues; Oil jumps – Incoming Iran sanctions; Gold continues hold from 1220; Heavy news week starts with Bank of Japan

Jul 31, 2018 | Market Updates

Upcoming high impact news:

11:00 NZD ANZ Business Confidence
Tentative – JPY BOJ Outlook Report – Monetary Policy Statement – BOJ Press Conference
22:30 CAD GDP
00:00 USD CB Consumer Confidence
08:45 NZD Employment Change – Unemployment Rate

Stocks in the U.S continued to decline, tech and the S&P500 led the falls. Twitter fell 8%, Take-Two Interactive, Electronic Arts and Akamai Technologies pulled back 7.7%, 5.7% and 5.5%, respectively. Dragging on the SP500 tech sector. The Nasdaq fell a further 107.42 points posting a three-day drop of 3.86 %, its biggest since late March, when it lost 5.12% over three sessions. “These are stocks you want to run away from,” McDonald told CNBC’s “Trading Nation” on Friday. “I see potentially 30% to 40% downside on the FAANGs.”

“The guys at the top don’t stay there forever,” said Kim Forrest, senior equity analyst at Fort Pitt Capital. “I don’t see anyone displacing them right now, but they do have to make changes to their business models. For example, Facebook has to spend more money to make sure people aren’t abusing the platform. Investors like more money, not less.”

The S&P500 lost 16.22 pts and the Dow Jones dropped 144.23 pts, Visa and American Express dragged. Caterpillar a key Dow stock, said in its second-quarter earnings report that recently imposed tariffs will shave off between $100 million and $200 million from its bottom line in the second half. The company also reported better than expected earnings and raised its full-year outlook.

The markets are looking to the Fed policy meeting starts Tuesday. Market expectations for a rate hike are just 3%. “The Fed has said it expects to raise rates twice more this year,” said Ed Keon, chief investment strategist at QMA. “If you look at the probability markets, most people in the market expect at least one more rate hike. It is the second one investors seem to be split on.”

European shares finished lower, Deutsche Bank has moved nearly half of its euro clearing activities from London to Frankfurt, according to a report from the Financial Times on Sunday. Heineken shares dropped to the bottom of the European benchmark after reporting lower than expected results for its second quarter. Tech worries and trade maintained pressure over equities. The FTSE dipped just into the red -0.46 pts – The DAX lost 62.20 and the Euro Stoxx 50 lost 13.29.

Oil jumped added 97 cents as traders looked to sanctions looming for Iran, gains were capped on trade rows. Saudi Arabia last week said it was suspending oil shipments through the Red Sea’s Bab al-Mandeb strait after Yemen’s Iran-aligned Houthis attacked two ships in the waterway. “There are a myriad of factors to follow at the moment in the oil market but one way or the other we always arrive at the same conclusion. It is the impact of the U.S. sanctions on Iran that will decide the next $15 a barrel,” PVM Oil Associates Tamas Varga said in a note.

USOUSD closed at 69.52 breaking short-term resistance but stalling at a longer term high seen at the 69.70 area. Gold closed flat but continues to find buyer support from 1220. So far five attempts to break have been stopped. While support is seen the overall trend remain down.

Currencies, USD lost ground to the majors last night but held gains to the JPY. The EUR was supported by stimulus news trading 47 pips higher to the USD and trading higher to the crosses. The Yen fell, risk putting in a strong finish to the session. The AUD, EUR and GBP all in the positive for a 2nd session. The EUR adding 65 pips. The USDCAD dropped 16 pips closing into support. Sellers briefly taking price back into the 1.29 handle.

ASX200 has once again shaken off weaker leads, price trading 11.30 pts higher, we’re watching 6290 on the AUS200, a close above that level show’s buyers continue to hold numbers.

A raft of central bank meetings kick off today starting in Japan. The BoJ will consider changes to its massive stimulus program to make it more sustainable, such as allowing greater swings in interest rates and widening its stock-buying selection, Reuters reported last week. This was seen in the 10-year buying during the week. The changes, although small, would be the first since 2016 and the latest sign Governor Haruhiko Kuroda is gradually walking away from his radical stimulus program deployed five years ago to shock the public out of a sticky deflationary mindset.

“Even if they tell us they are talking about making changes, that is likely to be enough for the market to try and take JPY stronger,” Brad Bechtel, managing director, at Jefferies in New York, said in a client note.

With the Fed, BoE and Non-farm payrolls coming this is shaping up as a potentially volatile week.

Good trading from Eightcap.

Sources; CNBC – Reuters – All times are AEST

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