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Equities rebound as risk sentiment switches ahead of earnings data

The US, UK, and German indices are all higher today at the London close. Oil is currently finding some support around $66 per barrel and the US dollar continues to appreciate. Turn around Tuesday could be in, so watch the Mondays ranges for hints of where we go tomorrow.

Daily Market Wrap

Looking at the volume in the S&P500 so far today data is leaning towards slightly less volume traded than the previous 3 trading days. However, on this thin market, we are heading back up after once again finding dynamic support on the daily 50 exponential moving average. The earnings out this evening include Texas Instruments, Johnson and Johnson, Coca-Cola Co, and Verizon Communications.

The rally could be put at the door of investor's optimism that the infrastructure bill that has been widely debated and amended is entering the final stages. Senator Manchin said “We’re close. We’re getting close.” So, I guess they’re close to signing it off? They need to get a shift on as they all go on holiday soon and there is also the debt ceiling to organize.

The US dollar continues to rally and is now above the $93.00 handle. Today’s housing data from the USA showed that housing starts jumped 6.3% month-on-month to an annual rate of 1.643 million in June. This reading is the highest in 3 months and above forecasts of 1.59 million. Unfortunately, US building permits fell 5.1% and came in under expectations.

Fixed income markets have corrected lower towards the breakout level. Yields rising and the US dollar rising has also put a stop to the appreciation in precious metals. Gold has come back to its opening price and silver is now trading lower than the rising support. The shift in sentiment is now moving back towards the Fed and away from the coronavirus. It certainly keeps you on your toes. Sentiment amongst analysts suggests that the market correction yesterday was overdone. We talked about this on Monday in the Week Ahead video, where Joel and I said that vaccines are a game-changer. Any correction will be short-lived. What may happen is that we have many small corrections that cumulatively bring the market down. But generally, the world should be able to cope with the virus if the death rate stays lower than this time last year.

The stronger US dollar has lifted the USDJPY and the price action is positively divergent to the stochastic indicator, showing that the bottom of the correction could be in. The move out of the yen as a safe haven comes as the Delta coronavirus variant is declared responsible for 83% of all new coronavirus cases in the United States and the Tokyo Olympics organising committee CEO Toshiro Muto said that he hasn’t ruled out canceling the games at the last minute.

Oil is back into a range we saw before the latest OPEC+ meetings. We should find support in this balance area. If we do not and the daily 200 ema gives way, the correction is probably going to be deep and maybe all the way back towards $40 per barrel. The consensus is still for $80+ oil in the coming months.


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