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Stocks Update

Stocks Update; Market Expects RBI & US Jobless Claims

Thursday saw a bleak outlook for Asian stocks and U.S. equity futures, sending bonds and the tried-and-true safe-haven currencies of the U.S. dollar and Japanese yen soaring.

As reports of a U.S. slowdown added to fears of a global recession, investors were keen to cash out on recent gains. With many global markets closed for Good Friday, all eyes are on the highly-anticipated U.S. monthly payrolls data. Will it be a pivotal moment for the market? Time will tell.

The markets in Asia had a mixed day with Chinese blue chips dipping slightly and Hong Kong’s Hang Seng remaining steady. However, tech shares on the index dropped by 0.8%. Japan’s Nikkei had a rough day, falling 1%, which contributed to MSCI’s broadest index of Asia-Pacific shares dropping 0.8%.

Despite surging over 5% since mid-March to reach a 1 1/2-month high on Tuesday, the Asia-wide index took a hit yesterday. Both South Korea’s Kospi and Australia’s equity benchmark also experienced losses. As we head towards the U.S. open, Nasdaq E-mini futures are indicating a 0.45% lower restart, after the tech stock benchmark slumped 1% overnight.

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Meanwhile, E-mini futures for the broader S&P 500 are indicating a 0.24% decline at the reopen, following Wednesday’s 0.25% slide.

The US labor market is showing signs of weakness with lower-than-expected job growth in March and slower services sector activity. This has triggered concerns of a potential slowdown in the economy among investors, who have started selling riskier assets and leaning towards safer options like Treasuries and the dollar.

Analyst Tony Sycamore suggests that it would be wise to take caution ahead of the Easter holiday weekend, and all eyes will be on the upcoming release of Friday’s non-farm payrolls report. The cracks in the economic data are causing investors to take a step back and evaluate their positions.

As the week has progressed, the signs have been pointing towards a significant slowdown in the US. This has caused traders to expect a more cautious approach from the Federal Reserve. In fact, the chances of a quarter-point hike at the next meeting in May are now seen as almost equal to those of the Fed taking a pause.

This has resulted in a drop in treasury yields, with 71 basis points of easing being factored in by year-end. In Tokyo, the 10-year note has yielded 3.30%, remaining steady at its lowest level in almost 7 months, which tells us that the markets are bracing for a bumpy ride.

The Japanese yen found some relief as U.S. yields impacted its value, unlike the greenback which slipped against it. The dollar index managed to recover from a low while other major currencies were not so fortunate. The Australian and New Zealand dollars, both inextricably linked to the commodity market, fell by 0.3% against the dollar while the euro was down 0.16%.

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Crude oil prices continued to decline, with West Texas Intermediate losing 57 cents at $80.04 a barrel and Brent falling 61 cents at $84.38. Meanwhile, the S&P 500 recorded a dip and the Nasdaq saw a sharp decrease due to ongoing concerns about a possible recession as the Federal Reserve raised interest rates.

In a blow to Nvidia Corp, Alphabet Inc’s Google unit has announced that its supercomputers for training artificial intelligence models outperform the components made by the chipmaker in terms of speed and energy efficiency.

As a result, Nvidia suffered a 2.1% drop and contributed to the decline of the S&P 500. Meanwhile, high-flying tech companies such as Tesla, Amazon, and Apple also faced losses, causing the Nasdaq to retract and reversing gains from the recent weeks.

Investors are feeling the jitters as Caterpillar (CAT.N), known for predicting the health of the industrial sector, has lost 7% over the past two days with a 1.8% drop today. The S&P 500 finished the trading day with a slight decrease of 0.25%, while the Nasdaq fell by 1.07% to close at 11,996.86 points. However, the Dow Jones Industrial Average edged up by 0.24% to finish at 33,482.72 points.

The market has been on edge due to growing fears of an economic downturn, which were compounded by a disappointing ADP National Employment report that revealed that U.S. private employers hired fewer workers than expected in March, following Tuesday’s weak job openings data.

Recent economic data have been showing a cooling demand in the services sector, accompanied by a decrease in prices paid by services businesses to a three-year low. Additionally, factory orders and manufacturing activity have also been softening.

The reaction of Wall Street to these signs of a slowing economy is different from what we have been seeing in recent months. Previously, investors cheered at weak economic data, as they hoped it would mean that the Fed might ease up on their campaign to control inflation. However, the recent losses suggest that the market may be looking for more stability in the economy.

The economy and the banking sector are causing uncertainty, and interest rate futures imply that the Fed may cut interest rates soon. This worry reflected in the stock market, with seven of the eleven S&P 500 sector indexes declining, led by consumer discretionary and industrials.

However, Johnson & Johnson rallied 4.5% after announcing an $8.9 billion settlement offer for talc-related lawsuits, which gained the support of thousands of claimants, easing an overhang on its plans to list consumer health unit Kenvue.

The technology world took a hit as artificial intelligence company Inc experienced a steep drop of over 15%, following accounting allegations made by a short seller. Meanwhile, FedEx Corp rose 1.5% after announcing its consolidation of operating divisions in a move to increase efficiency and reduce costs.

Looking forward, financial reporting season looms, with big players like JPMorgan Chase & Co and Citigroup among those gearing up to share updates on the industry’s health. Refinitiv I/B/E/S predicts a 5% year-over-year decline in first quarter earnings for the aggregate S&P 500 companies, leaving investors eager for further insight.

The stock market saw a higher number of declining stocks compared to rising ones in the S&P 500, with a ratio of 1.2-to-one. However, the Nasdaq posted 39 new highs despite recording 269 new lows. The volume of shares traded on U.S. exchanges was relatively light at 10.1 billion, lower than the average over the previous 20 sessions.

As for the global market, all eyes are on India’s upcoming interest rate decision this Thursday, following Australia’s decision to keep rates steady and New Zealand’s surprising 50 basis point hike. Other notable events to watch for include the Chinese services PMI and Australian trade figures, as well as remarks from Reserve Bank of Australia governor Philip Lowe on the RBA’s outlook.

Investor sentiment may be further dampened by a fresh round of bleak economic indicators and growing fears of a recession in the U.S. Meanwhile, across the ocean, the Reserve Bank of India is anticipated to wrap up a series of interest rate hikes with a quarter point increase to 6.75, but there’s speculation that another hike could still be in the cards.

Although experts are predicting the RBI will take a tough stance on rates all year long, traders are wagering that there may be a shift in the opposite direction, with current market projections pointing to a small reduction by the close of 2019 and a significant quarter point decrease by February 2020.

Investors should keep a watchful eye on Thursday’s market movements as several significant events are expected to unfold. The Reserve Bank of Australia’s top honcho Philip Lowe will deliver a much-anticipated speech, while India is set to announce its interest rates decision.

In addition, China’s Caixin services PMI for March is also slated to be revealed, shedding more light on the country’s economic performance. Stay tuned for potential market-moving news!

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  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.