Stocks showed positive momentum on Wednesday during the ongoing corporate earnings season, with the Dow Jones Industrial Average achieving its longest winning streak in nearly four years. The Dow closed 0.31% higher, at 35,061.21 points, marking its eighth consecutive day of gains, a feat not seen since September 2019. The S&P 500 also climbed 0.24% to 4,565.72, while the Nasdaq Composite edged up 0.03% to finish at 14,358.02. The current earnings season has shown promising results, with 78% of S&P 500 companies surpassing expectations, signaling an optimistic outlook for a potential soft-landing scenario as inflation data remains encouraging.
Goldman Sachs reported mixed results on profit and revenue, primarily influenced by losses in real estate and GreenSky. Despite the anticipated lackluster quarter, Goldman’s shares gained nearly 1%. Other major companies, including U.S. Bancorp and J.B. Hunt, experienced notable stock jumps of about 6.5% and 3.7%, respectively. Additionally, as prominent firms such as Netflix, Tesla, IBM, and United Airlines prepare to release their earnings, the market remains hopeful for continued positive outcomes. The positive sentiment was further boosted by Carvana, a used car retailer, which saw its shares surge by 40% after securing a deal to reduce its debt, and releasing its quarterly earnings report ahead of schedule.
On Wednesday, all sectors in the market showed an overall increase of 0.24%. The real estate sector experienced the highest gain, rising by 1.12%, followed by utilities, which increased by 1.02%. Consumer staples also performed well with a rise of 0.93%, while both the energy and consumer discretionary sectors saw a moderate increase of 0.52%. Health care and financials sectors followed closely with gains of 0.50% and 0.45% respectively. The communication services sector showed a more modest growth of 0.23%.
However, not all sectors had a positive day, as some faced declines. The industrials sector experienced a slight decrease of -0.05%, while the information technology sector saw a more significant decline of -0.27%. The materials sector had the largest decline among all sectors, with a drop of -0.52%. Overall, the market exhibited a mix of positive and negative performances across different sectors on Wednesday.
The dollar index saw a rise of 0.34%, largely driven by a significant 0.85% drop in sterling. This decline in sterling led to a sharp decrease in BoE policy rate pricing and gilts yields. The oversold dollar had been rebounding since its collapse in July and gained traction after finding support at the midpoint of its previous advance. As a result, two-year gilts yield fell 20bp, and the expectation for a 50bp August BoE hike was repriced to just 25bp, with the likelihood of a following hike now in doubt. On the other hand, two-year Treasury yields remained flat, and the Fed’s next rate hike is priced at 25bp next week, with only a 28% probability of another hike before rate cuts in 2024. EUR/USD also fell 0.25%.
Looking ahead, Thursday’s below-forecast U.S., UK, and Canadian inflation data may bring increased focus on the Fed’s mandate for maximum employment. If initial and continued claims remain above forecast, it could strengthen the dollar’s bearish outlook. However, initial claims remain relatively low compared to historical levels. Meanwhile, the yen rose 0.52%, facing resistance at 140 due to a series of large 140 options expiring in the coming week. The dollar’s rebound and lingering uncertainty influenced the Australian dollar and yuan, both of which saw declines of 0.6% and 0.5% respectively. Upcoming events include Philly Fed, existing home sales, leading indicators on Thursday, and Japan’s CPI report on Friday.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Pair Holds Steady Despite Mixed Economic Data in EU and US
The EUR/USD pair experienced slight downward movement on Wednesday, reaching a low of 1.1173 before settling just below the 1.1200 threshold by the end of the day. The Euro was supported above 1.1200 during the first half of the day due to positive European data, with the Eurozone confirming a 5.5% YoY increase in the June Harmonized Index of Consumer Prices (HICP), meeting preliminary estimates. Additionally, the European Union’s annual inflation rate in June decreased to 6.4% from May’s 7.1%. Meanwhile, financial markets remained optimistic during the American session, despite discouraging US macroeconomic figures, which showed a 3.7% decline in June Building Permits and an 8% decrease in Housing Starts for the same month. The Greenback gained momentum after Wall Street’s opening, even as US indexes extended their rallies, with the Dow Jones Industrial Average rising for a seventh consecutive session, and the Nasdaq Composite and S&P 500 up for the third straight day. On Thursday, the macroeconomic calendar will feature the June German Producer Price Index (PPI) and Eurozone May Current Account, along with July Consumer Confidence data. Meanwhile, the US is set to publish weekly unemployment figures and June Existing Home Sales.
According to technical analysis, the EUR/USD pair is currently experiencing a period of consolidation, with limited movement and a narrower gap between the upper and lower bands of the Bollinger Bands. The Relative Strength Index (RSI) is currently at 58, suggesting that the EUR/USD pair has returned to a neutral stance.
Resistance: 1.1291, 1.1382
Support: 1.1173, 1.1086
XAU/USD (4 Hours)
XAU/USDPrices Slightly Down as US Dollar Rebounds on Easing Global Inflation
Gold prices experienced a modest decline on Wednesday, as the US Dollar regained demand due to recent oversold conditions and its inability to continue last week’s downward trend. Despite the dollar’s resurgence, global financial markets remained optimistic as inflation showed signs of easing, with the UK’s annual Consumer Price Index rising below market expectations and the Eurozone’s Harmonized Index of Consumer Prices also showing a modest increase. Global stocks continued to perform well, with US indexes posting significant gains for the third consecutive day and government bond yields easing, which tempered the bullish potential for XAU/USD. As a result, the precious metal traded at around $1,974 per troy ounce.
According to technical analysis, the XAU/USD pair moved higher on Wednesday and managed to reach the upper band of the Bollinger Bands. Currently, the price is slightly below the upper band, indicating a potential move towards the middle band. Additionally, the Relative Strength Index (RSI) is at 75, suggesting that the XAU/USD pair has returned to a bullish sentiment.
