DAX Falters on Slower China GDP and Trump Assassination Attempt

dax falters on worse than expected china data

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China GDP YoY declined more than expected, economic expansion from the world’s second largest economy grew by 4.4%.

Forecasts had been for a 5.1% growth, down only slightly from last quarter’s reading of 5.3%. China is Germany’s biggest single trading partner, and the [[DAX]] index has benefited from German companies’ large exports.

A decline in the expansion of economic activity has stopped the rally that started yesterday with a 1.02% gain on the day. Later on today, Fed Chair Powell will give a speech, the market will be looking for more clues as to whether the central bank is on a path to cutting rates in September.

The attempt on Trump’s life has led many to believe the Republican nominee, to be confirmed today, will win the election for president. Initial concerns of higher tariffs on imports could lead to higher inflation seem to have dissipated.

On Friday, the ECB will have its monetary policy meeting, with the market widely expecting the central bank to keep rates on hold. The ECB president has reiterated that further cuts must be supported by data.

The current inflation rate is at 2.5%, down slightly from the previous reading of 2.6%, but still above the 2% target of the ECB.

Technical View

The day chart below for the DAX shows a market that has regained its bull trend. However, confirmation will be given once the price level goes above the all-time high of 18,913 (red line). Yesterday’s candle took the market above the Ichimoku cloud again, an initial bullish indication.

The next main resistance is at the ATH of 18,913, while support will be found on the previous high of 18,601 (black line), just below that, the cloud will offer support (green area). Should the market fail to rise higher, we me be looking at a head-and-shoulders setup.

This type of pattern, forming after a major bullish running could lead to a major correction. Still, it’s early yet, but worth keeping an eye on it.

[[DAX-graph]]

NIKKEI225: Weak US Inflation Data not Enough to Keep Bull Trend Alive

nikkei225 plummets after weaker inflation data

U.S. inflation slowed to 3% YoY from 3.1% creating greater hope for a Fed cut. But the yen strengthened against the dollar.

The yen rallied against the dollar yesterday after the weaker inflation number. The [[USD/JPY]] reached 157.45, sparking speculation that the BoJ also intervened in the forex market to push the yen higher by 8% on the day.

The sharp move in the forex market coupled with a selloff in tech stocks. The [[NAS100]] saw a sharp decline despite a positive inflation figure. The [[NIKKEI225]] pressured by these two factors, followed suit and lost over 2% on the day.

The market decided to take profits as the number was a positive one, but already priced in. So, far today the Japanese index is down 0.85%, and looking set to print a red candle.

When a market overshoots, then the reaction to the fact is usually a correction, as reality didn’t live up to expectations. The market was clearly hoping for an even better inflation number that would have put the Fed on a path to lower ratees.

As it is, the actual number may not be enough. We also know that the Fed wants to see further proof of stabilizing inflation, as many Fed officials have stated. The central bank’s favorite index is the PCE. Which has been stable over the past months, but still far from the 2% target.

It’s likely any drop from the current level of 2.6% YoY PCE might fuel another rally in stocks. However, a small increase would just as easily create downside volatility.

[[NIKKEI225-graph]]

The BoJ a Weak Yen and Rising Yields

The BoJ has its own battle to fight, which is opposite to the Fed’s forward policy. The Japanese central bank is fighting rising inflation and a weakening yen. To counter a weak yen the central bank can intervene in the forex market as it seems it has.

But these interventions are always short lasting, and the other options can dramatically affect GDP and the stock market. The BoJ has also been reducing its bond purchasing program, to keep yields high and fend attacks on the yen.

To fight inflation the option the BoJ has is to raise rates again, this would also help the yen. However, it would also make the Japanese stock market less attractive to foreign investors. At the same time bond yields would rise and bleed investor appetite for stocks.

NIKKEI225 Reaches New All-Time High – TSMC Leads the Way

nikkei 225 reaches new all time high

Japanese stocks get a boost on renewed AI optimism with semiconductor manufacturer TSMC up 3.54%.

U.S. tech stocks achieved another all-time high overnight fueled by AI speculation and a close Fed pivot. The [[NAS100]] peaked at 20,725 yesterday giving tech stocks and the [[NIKKEI225]] momentum, taking the index to an ATH of 42,465.

Statements from Fed Chair Powell’s testimony at the house committee help investors gain hope of a rate cut before the end of the year. As the possibility of a cut is linked to inflation, today’s inflation data is of significant importance to keep the current bull momentum alive.

The BoJ on the other hand, is battling with the need to raise interest rates to curb rising inflation. The central bank also has another concern, a weakening yen. Speculation has been rising that the BoJ will raise rates as a way to defend the local currency.

While a weak yen can lead to imported inflation it is also helping the stock market as share prices look cheap to investors with books in foreign currencies. A rate hike in Japan may lead to a correction in the stock market.

But at the same time, a bull run in the U.S. market and hopes rate cuts could still lead the NIKKEI225 higher.

Technical View

The day chart below for the NIKKEI225 shows a market in a strong bullish trend. Yesterday’s candle reached an RSI of 80, while it indicates that the market is reaching overbought, it also tells us the market has a strong momentum.

The setup at the moment is looking like we may have reached a correction point. The Fibonacci retracement tool shows the first support on the 0.236 line of 41,104 (red line) also coincides with the support from a previous high of 41,109 (black line).

If the market does correct from here, I would expect that area to hold given the technical aspects of previous highs and the Fibo 0.236 level. For the signal of a correction to be complete we would need the RSI to close below 70.

[[NIKKEI225-graph]]

FTSE Flat on the Day – Market Wrestles with Rate Expectations and Labour Manifesto

FTSE struggles with rate expectations and labour party manifesto

The market heard cautious remarks yesterday from Fed Chair Powell, hoping that data will prove a cut is warranted.

Investors and traders are hoping tomorrow’s inflation data from the U.S. will show a reduction in the inflation. After comments from the Fed Chairman again reiterating that more data is necessary showing a reduction in inflation to cut rates.

Analysts are expecting a decline in inflation YoY from 3.3% to 3.1%, which would add to the perception that the Fed is getting closer to acting on monetary easing. Fed action would make it easier for the BoE to take action.

The pound is struggling to regain ground above 1.2800, a weak currency can lead to imported inflation. In a fight to keep inflation low, the BoE would be weary to cut rates before its U.S. peers.

[[FTSE-graph]]

Labour Party Manifesto

The possibility of lower rates that has been driving stock markets recently is confronted by the pledges made by the newly elected Labour party government. The Labour party pledged £1.3 billion in public health spending.

They have also promised various infrastructure spending and spending on a variety of youth and equity programs. In contrast to their spending, they have also promised not to raise income tax, sales tax, or national security.

At the same time, they are committed to capping corporate tax at 25%. This only leaves one route to fund government, more debt.

Higher issuance of gilts will inevitably lead to higher yields. The consequences for the stock market wouldn’t be so rosy.

Higher yields can be shaken off by an expanding economy. Tomorrow we are expecting GDP data for the UK.  Forecasts are for a slight improvement in GDP YoY from 0.6% at the last reading to 1.2% for May.

NIKKEI225 Surges to New All-Time High, Fueled by AI Fever & US Stocks

Japanese stocks were propelled higher overnight reaching a new ATH of 41,746 or 2.3%.

Most major Asian stock indices got a lift following the new ATH in the US for the [[NAS100]] and SP&500. The AI powered bull run helped chip makers in Japan, together with an increasing perception about accommodating BoJ bond purchases.

The BoJ will meet with bond market makers today, July 9, and tomorrow to get advice on just how much they can reduce their JGB purchasing program. This meeting is seen as possibly an accommodating move.

The BoJ Japan will meet at the end of the month for their monetary policy meeting. At the meeting they’ll also outline with precision their JGN purchases. The market is begging to feel that the reduction in bond purchases may not be as bad as first imagined.

The [[NIKKEI225]] also benefitted from a weak yen, which is trading at 38-year lows against the US dollar below 160. The weak yen is making Japanese stocks much cheaper for investors that have their books in another currency.

Attention turns to Fed Chair Jerom Powell’s testimony to congress at 2pm GMT. Investors and traders are hoping to hear some accommodating language after a series of data showing inflation is cooling.

Technical View

The day chart for the NIKKEI225 below shows a market that is experiencing a bull trend. The trend is in full swing as today’s candle broke through the previous ATH. The RSI is above 70 demonstrating the strength of the move.

As long as the RSI remains above 70 we can expect to see further highs. A dip below 70 would signal a possible correction. If that were to happen the first support would be the previous ATH of 41,109 (black line).

If that breaks, the following support would be at the previous high of 40,558 (orange line). This level of support also coincides with the Fibonacci retracement level of 0.236.

CAC: Far-Left Coalition Wins French Election, May Result in Hung Parliament

The second round of the French general election gave an unexpected victory to the left-wing alliance National Front.

The coalition is led by the far-left France Unbowed, which has an agenda of higher public spending financed by tax hikes. Despite the alliance’s unexpected win, they fell short of an outright majority of seats.

Exit polls show the coalition led by Luc Melenchon could land between 184 and 186 seats of the 577 seat Assembly.  Far short of the number needed to command a majority, and the other two parties make unlikely candidates for alliance.

Marine Le Pen’s National Rally looks set to score between 141 and 143 seats, a big improvement on the last general election where they landed 89 seats. While Macron’s technocratic party may win between 160 and 162 seats.

The political landscape is divided, with two parties from the far left and right, and Macron’s party which believes in running the country like a corporation. The situation means the current Assembly prime minister will resign later in the day.

A New Prime Minister

The President of France will then choose a new candidate as prime minister to form a cabinet. The candidate is likely to come from the far-left alliance, and specifically from Melenchon’s France Unbowed party.

This means Macron may have to work with a party that is completely opposed to his policies. One of the campaign promises from Melenchon was to bring the retirement age down again. Macron raised the retirement age, among widespread protests, to 64 years of age.

France Unbowed campaigned on bring it down to 60, this move would cost 100s of billions to the treasury. Likely bringing bond yields higher and putting pressure on the stock market.

Legislation of this kind would also move in the opposite direction required by the EU, which is asking for the French government to make cuts in spending to bring back in line its debt to GDP ratio.

The [[CAC]] opened down this morning by 0.4%, to then recover along with other major stock indices. The market is currently up 0.33% on the day, while the specter of a hung parliament remains on the sidelines.

[[CAC-graph]]

DAX Continues Rally – Set to Make a 3-Day Streak

DAX is up 0.8% so far this session and continues a 2-day rally despite today’s poor economic data.

Industrial Production MoM released earlier today at -2.5% compared to last month’s 0.1%. The market seems to have taken it in its stride, and that’s also taking into account forecasts were for a small rise in activity by 0.2%.

One reason why the market is not too worried by the drop in monthly industrial activity is that most of the [[DAX]] are large exporters of their goods, and international trade has a greater weight than local industrial production.

Auto tire -maker Continental is leading the way for the index, up nearly 7% on the day as the stock continues to rally from a recent low. Other top performers include MTU Aero Engines up 2.08% and Hannover Ruck 1.91%.

The attention now turns to this afternoon’s Non-farm Payrolls from the U.S. The markets are expecting a decline from last month’s 272k to 190k. The decline would still show an expanding economy, be it at a slower rate.

The market may accept the news well, as investors would consider that the Fed may see less inflationary pressure from a lower employment number.

Technical View

The day chart below for the DAX shows a market still in a bull trend with the market back above the cloud. Today’s candle is finding resistance at the level of 18,601 (black line), which is a high set in April.

dax rallies on for third day

We may see more bullish action if we get a close above the black line, after which the next resistance would be at the all-time high of 18,911 (red line). To the downside, the market has immediate support from the cloud.

Then further below the cloud at 17,939 (green line), which was the low of the correction from the ATH. To consider the bull trend as back in action we would need to see a close above the ATH. For the meantime the market is now looking like it is likely to trend sideways.

The upper and lower boundaries of the ATH and the green line from the last dip at 17,939 will set the liekly range.

[[DAX-graph]]

UK Elections: What you need to know

The UK general election is underway today, with polls showing the Labour party likely to take an outright majority in the house of parliament.

Today’s election result could put Labour back in power after 14 years of Tory rule. Some polls are forecasting Labour’s victory could one the biggest parliamentary majorities in British history.

One of the main reasons for the shift from Tory to Labour is the desire for change. During the reign of the Conservative party politicians have been wrought buy scandals during the pandemic, war with Ukraine, and high inflation.

Rishi Sunak, the current prime minister, took the job after Lizz Truss was ousted for proposing sharp tax cuts. The pound plummeted, Gilt yields soared, and mainstream media crucified her for proposing the same policies that had made ex-prime minister Margaret Thatcher so popular.

Sunak was elected as the new prime minister by the Conservative party barons without a popular vote. The current prime minister is an ex-Goldman Sachs banker with shares in a fund that has invested heavily in companies that produced the Covid vaccine.

The vote for Labour is seen as a way to get change. Keir Starmer the Labour party leader hasn’t even proposed a clear agenda of policies. His campaign has been based on promises to make government fairer and to stop the chaos.

The [[FTSE]] opened slightly higher on the day up 0.4% at the time of writing. While [[GBP/USD]] is also slightly bullish, up 0.02%. The markets may feel that, either way, a Labour or a Tory is good as long as there is a majority.

Tail Risk

We may still get a surprise tonight, voting finishes at 10 pm UK time, after which exit polls will be announced. Most polls are placing Labour first by a wide margin, with the Tory party 20 points behind Labour in many polls.

One poll showed that the Tory party may even come in third, behind the smaller Liberal Democrat party. But we have seen so many polls get voting predictions wrong that it wouldn’t surprise me if we get an unexpected result here too.

The most renowned blunder for voting polls was the Brexit referendum in 2016, which was supposed to be won by the Stay group. The result in that referendum stunned the markets and most of mainstream media.

Could anything of this magnitude happen in today’s election? It remains very unlikely, the average British voter is set along red or blue lines and voting in the least bad option. However, the Reform party is gaining traction, and has added to its candidates Niel Farage.

Farage was the lead figure in the Brexit campaign, which he eventually managed to win. His candidacy has given the Reform party visibility and renown, something they have had little of since they formed.

Reform Party’s First Seats

The reform party may win its first seats in the house of parliament. But it may also make things worse for the Tory party. Many analysts believe the Reform party votes will come from the Conservative vote.

However, I’m not so sure, many British citizens share the same concerns whether they are on the left or right. Concerns which establishment parties like Labour and the Tories do not wish to even address.

If they do address them, such as immigration, what he have seen is the Conservative party promise to reduce illegal immigration, yet it has risen for every year they have been in government.

The surprise might come from the percentage of votes going to the Reform party. Most polls place them at receiving between 15% and 17%. Should that be a much larger number, although it may not win the more seats, it would show that the two-party system is beginning to fall.

[[GBP/USD-graph]]

DAX Declines as Global Geopolitical & Inflation Concerns

The German stock index opened lower today on the heels of a broader stock index decline in the US.

Investors are facing a challenging summer ahead. Geopolitical concerns from the war in Ukraine to the conflict in Israel. Coupled with the possibility of inflation printing higher than expected numbers.

We had a preclude last week with GDP Price index numbers printing higher than expected. We will all get one EDB policy meeting on July 18th and a Fed meeting on July 30-31. Both central banks are widely expected to leave rates on hold.

What the market will be looking out for is the forward guidance for clues on when the ECB will lower rates again, and when the Fed will pivot to monetary easing. Then we will see some extra volatility as investors and traders begin to take their holidays.

The summer months are typically a period of the year when markets are more volatile than average, and stock returns tend to be weak. The [[DAX]] is down 0.9% today, but one stock is on a rally.

In stark contrast to the major trend, Siemens Energy AG (ENR) is up 3.5% on the news that the company is in the process of hiring 10,000 employees for its energy grid technology division.

Technical View

The day chart for the DAX below shows a market struggling to remain above the Ichimoku cloud. For now, several attempts to break below the cloud have failed. Most of the candle bodies have closed with the cloud.

This type of action denotes uncertainty, with attempts to break above the cloud also failing. Yesterday’s candle is about to print as an Abandoned Baby, depending on today’s candle.

This pattern is typically bearish, and I would expect the market to trade below the cloud in the coming days. The next support is at 17,939 (light green line), which coincides with the market’s first dip below the cloud.

Should that break, the next major support would be at 17,419 (orange line), which coincides with the end of a correction that led to the last leg of the bullish trend.

[[DAX-graph]]

CAC Rallies After 1st Round in General Election

French stocks rallied this morning with other Eurozone indices, but the shadow of the general election result remains.

Marine LePen’s party National Rally obtained the most votes in the first round of elections, with polls placing her party within striking distance of winning an outright majority in parliament.

Macron is now considering pulling out of some electoral colleges to avoid a 3-way race where his party has little chance of winning the second round. He’s hoping that his voter will rally around the alternative to Marine LePen.

However, the second place in the first round went to the far-left alliance led by Melenchon’s France Unbowed party. The party is accused of harboring antisemitic views, which have been denied by Melenchon.

The second round could lead to an out-right majority in parliament for Marine Le Pen, which would oblige Macron to appoint the prime minister from her party. The event would create a disconnect between the president and the legislative branch.

But the final round of votes could also leave the National Rally with a win but without an outright majority. This would leave Macron’s party to attempt an alliance with the far-left alliance led by Melenchon.

Either scenario might make reducing the national debt and keeping a corporate friendly environment harder. Moody’s has already stated that they may place their outlook for French government bonds to negative.

Technical View

The day chart below for the [[CAC]] shows a bearish trend with the market below the Ichimoku could following a series of lower lows and highs. The previous low from June 14 seems to have created a base after a second touch on Friday.

Today’s candle is a bullish one but seems a take-profit reaction after the latest slide from its all-time high of 8,259. Today’s candle found resistance at 7,721 (green line), which has been tested twice before.

The last 10 candles have remained within the range of 7,460 (black line) and 7,721 (green line), which are now the immediate support and resistance levels. The next support is at 7,281 (orange line) and the higher resistance is at 7,854 (blue line).

[[CAC-graph]]