DAX30, FTSE 100 End Down After Lower ECB Inflation Expectations

Yesterday stock markets made some nice gains, with Dax30 and UK FTSE 100 increasing more than 1%. But, today we are seeing a reversal despite risk currencies continuing to climb higher. The German index DAX is down by -0.5%, while the FTSE 100 is down by -0.7% at the London close, with the ECB lower the inflation expectations.

DAX 30 index has stalled the uptrend today

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NIKKEI Opens Slightly Lower – Interest Rate Concerns Weigh on Market

Nikkei225 slightly lower on concerns yen intervention

The NIKKEI225 opened down 0.18% with concerns of BoJ intervention to defend the yen building up.

Previous intervention from the BoJ to keep bond yields higher have scared off many investors. When stocks compete with uncertain returns against bonds where yields are rising, the shift from stocks to fixed income is quick.

The market suffered after the last decrease in bond buying from the central bank but managed also to recover from that round. Concerns are rising that the BoJ will intervene again in the bond market to defend the yen.

The yen has been a concern for many BoJ and government officials, the latest rally in [[USD/JPY]] took the market to a high of 160.21. Speculation has been that the BoJ intervened shortly after that peak, although no officials have confirmed it.

However, these methods are rarely long lived, as we have been able to see, the USD/JPY is still hovering around 157.00. The other mechanism the BoJ has to defend the yen is acting on interest rates.

Although the possibility of another interest rate hike is there, it seems unlikely, given the slow growth of the economy. However, the central bank could intervene by pushing bond yields higher.

In this case, the institution has a lot more fire power and could play the game for as long as it takes to stabilize the FX rate. This action would almost certainly come at a cost for the stock market, at least initially.

Technical View

The day chart for the [[NIKKEI225]] below shows a market that is still in consolidation phase. After peaking at a new all-time high on March 21, the market corrected back down to the Ichimoku cloud.

nikkei weighed down concerns on bond yields

The cloud has been providing support ever since then, as the price pattern creates an upward sloping rectangle. Yesterday’s candle bounced off the support of the top side of the cloud, while today’s candle has met with resistance from the same cloud.

The upward sloping rectangle (yellow area) typically leads to a break to the downside. However, in this case the market has found support on the cloud, yet failure to break the topside of the cloud could lead to the market testing the bottom of that area (pink).

A break of the cloud to the downside would signal bearish momentum. And it would also coincide with a break of the rectangular pattern, also a bearish signal.

[[NIKKEI225-graph]]

S&P 500, Dax End Higher Despite US, UK Bank Holiday

Today stock markets continued the upside momentum from Friday, with S&P 500 and Dax heading toward new record levels once again. The US and UK were on a bank holiday weekend, but that didn’t deter stock buyers from continuing to pile in as risk sentiment turned positive, following the initial dive after the attack on Rafah.

Stocks Surge As Wall Street Rally Propels S&P 500 Towards Record High

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NIKKEI Opens in the Green despite Geopolitical Woes – Hawkish BoJ

nikkei up despite geopolitical tensions

Japan expressed concerns over China’s military drills surrounding the island nation of Taiwan. Further worries of BoJ hawkishness seem to fade on this week’s open.

Japan’s Prime Minister Kishida expressed his concerns about the military drills to China’s Premier Li Qiang at a trilateral meeting with South Korea. The military drills conducted by China have raised tensions across the west as the US sees itself pulled into the conflict.

Last week’s hawkish BoJ sentiment rippling through the market seems to have dwindled today as the [[NIKKEI225]] is up 0.30%. Positive data from the Leading Economic Index at 112.2 up from 112.1, with forecasts at 111.4, helped garner some bullish sentiment.

Technical View

The NIKKEI225 day chart below shows the market is still in a consolidation phase after a correction from its all-time high. The market retraced back down to the bottom of the cloud, marking its recent low

Since then, the market has been hovering around the bottom of the cloud creating an upward sloping rectangle. This pattern is a consolidation pattern which usually leads to further downward price action.

nikkei rises, beats military tension in taiwan strait

However, it has formed on the cloud which also acts as a support area. Today’s candle bounced off the bottom of the cloud and looks set to close green. The current price level is struggling to clear the resistance from a previous high in February (green line).

If the market does clear the resistance, then the next resistance level is a previous high of 39,987 set on April 12 (blue line). To the downside, we would need to see a break of the sloping rectangle, which could lead to further lows.

The next support level would be at 36,703 (black line), which was the low set in the large bull trend correction on April 19. For the bullish trend to continue we need to see a break above the ATH of 41,224.

[[NIKKEI225-graph]]

DAX Rises on Speculation of More Rate Cuts After June

dax gets boos from ecb chief economist

Philip Lane, chief economist ECB, talking to the Financial Times stated that the pace of inflation was declining sufficiently to pave the way for further monetary easing after June.

The ECB moving on interest rates before the Fed could devalue the Euro, which would create inflationary pressure. However, Lane said that it would take a considerably large move in the FX rate for inflation to pickup again in a meaningful way.

He also mentioned that the impact from the interest rate differential may be short lived. Citing indications that the economy in the Eurozone is expanding, while the US economy is showing signs of contraction.

The central bank has been concerned about wage growth, which could create inflationary pressure. However, the chief economist sees evidence that overall wage growth is contained:

“Looking at the full detail, the overall direction of wages still points to deceleration, which is essential.” Adding “So, we are a step along this journey.”

Lane continued to say that further rate cuts would be on the table going into 2025 as inflation settles closer to the ECB target of 2%.

“Next year, with inflation visibly approaching the target, then making sure the interest rate comes down to a level consistent with that target; that will be a different debate,” he said.

The chief economist’s words are very bullish, although most Eurozone indices felt little for it. Yet they are still indicative of what is going on within the ECB and how monetary policy may look like throughout 2024/25.

Technical View

The chart below for the [[DAX]] shows a market in a bullish trend, where the current leg is correcting lower. The previous 2 candles dipped below the support level of 18,634 (blue line). However, yesterday’s candle already closed above it, indicating this correction may have ended.

ecb signal more rate cuts, dax higher

The previous two candles also closed and opened on the Fibonacci retracement level of 0.236 or 18,568 (redline). The bounce on the support level may indicate further momentum higher, which would be met with resistance at the all-time high of 18,928.

To the downside, we would need to see a close below the 0.236 support level, and the next support from the Fibonacci system would be the 0.382 support level of 18,344 (yellow line).

S&P 500 and Nasdaq Close Another Week at Record Highs

The week’s trading saw the Dow ended lower, the S&P 500 closed the week flat while Nasdaq posted gains, continuing its streak of positive weekly performance. However, the SPX made another record high during the week.

US Stock Markets Showed Mixed Performance

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NIKKEI Faces Pressure from Higher Bond Yields & Weak Yen

nikkei rising

The stock market has seen an impressive rally during the first part of the year, with strong demand from foreign investors.

However, the recent correction in the broader stock market, [[NIKKEI225]] down 6.3%, is also mostly due to fading interest from abroad. The weak yen has made Japanese stocks less attractive.

At the same time, BoJ intervention to raise bond yields has also made stocks less attractive. The central bank may also have also intervened in the forex market in an attempt to stop the yen’s decline, creating more uncertainty.

Foreign investment in Japanese shares was ¥1.8 trillion during the first 2 weeks of April, compared ¥439 billion in the most recent 2 weeks. A sharp decline, which may continue as the BoJ maintains a hawkish stance on interest rates and the yen continues to weaken.

Sentiment on interest rates is pivoting towards a later cut from the Fed rather than sooner, while the BoJ is expected to raise interest rates, if anything. Although it’s likely the BoJ will continue to buy fewer bonds to prop up yields and defend the yen to fend off imported inflation.

Technical View

The day chart below for the NIKKEI225 shows the market on the Ichimoku cloud as the correction found support from the cloud. Today’s candle is green for now after 3 red candles, all within the cloud.

nikkei rising on better expectations

The cloud is considered no-man’s land, an area of uncertainty. The current formation (yellow area) of a sloping rectangle indicates consolidation. Typically, this formation leads to further downward price action.

However, we are also on the support of the cloud, so if that is not broken, we may see another rally. The next resistance level are at 38,893 (green line) and 39,987 (blue line). To the downside the market should find support Kijun line at 38,109 (crimson), and then at 36,703 (black line).

[[NIKKEI225-graph]]

FTSE: Worse than Expected Retail Sales Send Stocks Lower

FTSE fall after weak retail sales

UK stocks continue to fall after losing 1.55% in the previous 2 sessions. Retails sales add to the woes of high interest rates for longer.

Retail sales data released this morning showed a drop of 2.7% YoY compared to last month’s increase of 0.4%. The market was expecting a decline in consumer activity, but consensus was at -0.2%.

The large surprise in the decline of shoppers’ habits pushed the [[FTSE]] lower again in the early trading session. Despite the fact that often weak economic data has often sent stocks higher, since the market perceived greater chances of monetary policing easing.

But today’s figure for retail sales was greatly unexpected and so large a drop, at this point outweighing the positives from interest cuts. Later today we’re expecting Durable Goods Orders from the US.

This data is expected to show a decline of 0.8% MoM, compared to last month’s increase of 2.6%. I would expect that a low number would send stocks higher as it gives way to a more likely monetary easing from the Fed.

Technical View

The day chart below for the FTSE shows a correction underway within a major bullish trend. The correction comes after a new all-time high was posted on May 15. The RSI has been well above 70 for an extended period and broke below that level 2 candles back.

ftse drops on weaker than expected data

The break below signaled a possible correction, and that possibility seems to be playing out. Yesterday’s candle closed below the Fibonacci retracement support of 8309 (red line) and today’s candle should find support at the next Fibonacci support of 8202 (orange line).

The 8202 level also coincides with support from a previous high posted in April, which should make it harder to break. A close below that line should lead to further lows the following support at 8116 or 50% retracement level.

[[FTSE-graph]]

Nvidia Stock Above $1,000 on Record Profits, S&P Down on Higher Yields

The Nvidia stock price jumped above $1,000 today, finally breaking that major level and the resistance around  $970 after record earnings, which were released yesterday after the markets closed. That pulled higher major indices such as the S&P 500which printed a new record high, and the Dow Jones, but they reversed lower eventually as Treasury yields surged higher following the US economic data.

Nvidia earnings exceeded expectations

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DAX Recovers from Yesterday’s Low – PMI Data Vs Hawkish FOMC Minutes

dax falls on FOMC hawkish minutes

The FOMC minutes released yesterday showed a more hawkish stance from the committee’s members. The main sentiment is that inflation is not declining towards the 2% target as quickly as hoped.

Tech stocks, however, got a boost from a better-than-expected Nvidia earnings report, sending the NASDAQ to a new all-time high. Some analysts are expecting AI to create a stock market boom as the technology filters through various industries.

The [[DAX]] recovered some lost ground on the open, up 0.35%. PMI Manufacturing and PMI Services came in better than forecast. The bullish data for the German economy gave the index a small boost.

What still remains to be seen is whether the FOMC’s hawkish will take over sentiment.  The DAX reached an all-time high on April 16, of 18920. Since then, the market has failed to post a new high and trading sessions have shown no momentum with the market drifting sideways.

Looking at the forex market for clues we can see the euro is back up again, after dropping 20 pips on the minutes release. The EUR/USD is up 0.17% on the day, also boosted by Eurozone PMI data which was better than forecast.

For now, it seems that the revelation of a more hawkish stance has taken a back seat. We can expect to find more clues in upcoming data that might ignite hopes of a rate cut from the Fed sooner rather than later.

Technical View

The day chart for the DAX below shows a recent sideways market (blue area). Which is typical of a market in consolidation, a break of this area should give rise to a new movement in the direction of the break.

Dax declines hawkish sentiment

A break to the downside would be met by support at 18568 (blue line) and the at 18237 (green line). The 18237 level was set by a double top in April and should be a challenge to break. To the upside, the market will find resistance at 18919 (black line), which is the current all-time high.

[[DAX-graph]]