As my colleague Fawad Razaqzada noted on Friday, this week promises to be an interesting one for forex traders, with the Bank of England, Bank of Japan, Federal Reserve all set to meet, in addition to the always-noteworthy monthly Non-Farm Payrolls report on Friday.
Time window season came and went. Then there was Facebook, which got clobbered just as markets hit 618 days off the February 2016 bottom. This was one of the tougher windows the market has encountered this century. There was plenty of reason to believe the 610 would sustain and in certain instances, it has. But for the most part, markets have been higher than they were in the middle of July.
U.S. equity benchmarks sold of sharply on Friday. A rollercoaster week ended with mixed earnings and a big miss by Twitter weighed on an already damaged sentiment due to Facebook. Here, Friday morning, we called for a lack of value in the 2740’s and investors began to agree, derisking ahead of the weekend.
A busy week gets underway and amidst trade tensions, earnings, geopolitics and the July jobs report, the Federal Reserve is still the biggest voice in the room; U.S. and China trade heats up again this week with the White House expected to impose the second wave, $16 billion on Chinese goods, on Wednesday.
Asian equities kicked off the week in negative territory following the declines on Wall Street on Friday. The solid U.S. GDP data did little to support markets. The economy expanded at its quickest pace since 2014 in the second quarter, growing 4.1%, almost double the first quarter’s growth. However, investors have already priced in the positive news and so it came as no surprise. In fact, the surprise was in some of the big tech earnings results, in particular, Facebook, Twitter and Intel, which led to declines of more than 2.4% on the Nasdaq Composite Index on Thursday and Friday.
The U.S. dollar looks rather fatigued and we think it may be set for a correction of some sort in the coming days. After a three-month rally, the dollar Index is flat so far in July and with just one more day of the month left, we can’t see it staging a late rally now. Undoubtedly, the dollar’s hesitation this month is largely due to profit-taking after it rose sharply in the previous months on the back of stronger macro data, which cemented expectations that there will at least be two more rate hikes from the Federal Reserve before the year is out.
Crude oil prices are stuck between a rock and a range with seasonal weakness, as well as the promise of more oil production, which is alleviating fears of a tightening global marketplace. On Friday, the market was looking for a reason to rally or break. It got the reason to break on a report by The Wall Street Journal that Russia’s Energy Minister Alexander Novak, who said he “did not rule out… an increase in oil production in excess of 1 million barrels a day may be discussed.”