General Market Analysis 31/07/2024

Tech Stocks Hit Ahead of Earnings – Nasdaq Down 1.3%

US tech stocks took a hit in trading yesterday as investors looked ahead to key earnings reports from the ‘magnificent 7’ companies in the sessions ahead. While the Dow rose 0.5%, both the S&P and Nasdaq lost ground, declining by 0.5% and 1.28% respectively. US Treasury yields hit a four-month low as traders factored in a more dovish Federal Reserve later today. The 2-year yield fell by 2.6 basis points to 4.360%, and the 10-year yield decreased by 3.1 basis points to 4.147%. The dollar traded in tight ranges against most major currencies, except for the Yen, which appreciated against the greenback and other currencies as the market priced in a potential hike from the Bank of Japan later today. Oil prices dropped to a seven-week low due to ongoing demand concerns, with Brent and WTI both losing 1.4% to close at $78.63 and $74.73 a barrel respectively. Gold jumped 0.8% to finish at $2,403 per ounce.

Bank of Japan to Hit the Yen

Traders are preparing for more volatility in the Yen today as the Bank of Japan delivers its latest rate decision and associated statement. The market is split 50/50 on whether there will be a rate hike today, making the decision ‘live’ and creating several potential scenarios that could lead to significant movements in the Yen. A hike is expected to result in further appreciation of the Yen, breaking recent lows in UsdJpy and the crosses, whereas a ‘hold’ and a more conservative or dovish message will push the pairs higher into recent ranges. Traders looking at UsdJpy are aware that the Fed will make its rate call just a session and a half later, potentially creating a perfect storm scenario from a rate differential perspective. The biggest impact is likely with a BOJ hike and a more dovish Fed. Whatever happens in the coming sessions, most traders expect the Yen to be trading at very different levels in 24 hours’ time.

The Biggest Trading Day of the Year

Today could turn out to be one of the biggest trading days of the year, with some traders looking at the event calendar and noting the significant activity scheduled for the next three sessions. Two major central banks and six or seven major tier 1 data releases are on the cards. The early focus in the Asian session will be on Australia, where both CPI data and Retail Sales numbers are due out, with another strong CPI print possibly locking in a hike from the RBA. The focus then shifts to Japan for the highly anticipated Bank of Japan rate call, expected around lunchtime in Tokyo. In the European session, key Core CPI numbers are due for the Eurozone before the New York session opens with several updates, including the ADP Non-Farm Employment, Cost Index, and Pending Home Sales numbers in the US, as well as GDP data in Canada. These are all released early in the session before investors settle in for the latest update from the FOMC. Although no change is expected, Jerome Powell is anticipated to indicate a rate cut in September. Adding to the excitement, several big-name earnings reports, including from Facebook, could make for a very hectic day.

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