Look-ahead to week commencing 2nd October 2023
In the latest #TradewithDave update we look back at last week’s big events, and consider what’s happening in the week beginning 2nd October.
Stocks struggle through September
Global stock indices, led by the US, struggled to find a foothold in September. At the time of writing (Friday morning), and despite a positive start to trading, the Dow is on course to end the month 3% lower, the S&P 500 is down around 4.6% while the tech-heavy NASDAQ 100 has dropped around 6%. Several factors contributed to September’s weakness. The first two weeks were relatively benign, with the major US stock indices appearing to consolidate following a rally over the last fortnight of August. This ensured that the sell-off was all the more dramatic as it took place over two weeks rather than four. The catalyst for the pull-back was the hotter-than-expected CPI readings. This upset sentiment and saw the S&P 500 fall sharply as it failed to hold above 4,500. It didn’t take long for it to slice below 4,300 testing a band of support between 4,300 down to 4,250. The index steadied at these lower levels, and managed to push back over 4,300 on Thursday. Indicators such as the MACD suggest that the index is a touch oversold. But the S&P will need to hold support around 4,280/4,300 for the bulls to regain their confidence.
Check out the US 500…
Looking ahead
October is often considered a bad month for equities, thanks to the devastating crashes experienced in 1907, 1929 and 1987. But these events paint a misleading picture. October is often a volatile month, but historically it can prove to be more positive for stocks than many other months, including September. But with a possible government shutdown over the weekend, we could see some big price swings before a more discernible trend is established. Bear in mind that the third quarter earnings season gets underway on Friday 13th October, starting with some of the US’s major financial institutions.
Check out JP Morgan…
The US dollar is king – for now
The US dollar has been on a tear recently with the Dollar Index smashing above 10600 to hit its highest level since November last year. The Dollar Index measures the greenback against a basket of currencies, with the largest weighting given to the euro at 57.6%. Then there’s the Japanese yen at 13.6%, the British pound at 11.9%, the Canadian dollar at 9.1%, the Swedish krona at 4.2% and the Swiss franc at 3.6%. It appears that the European Central Bank (ECB), Bank of Japan (BOJ) and Bank of England (BOE) are all wary of damaging their respective economies by raising rates much further. Meanwhile, the message from the US Federal Reserve on interest rates is ‘higher for longer’ making the dollar an attractive place to park cash. But how much longer has this trend got to run?
Check out the Dollar Index…
Gold slumps below $1,900
Last week gold slumped below $1,900 per ounce to hit its lowest level since March this year. Some analysts blame the dollar for this, pointing out that gold is negatively correlated with the US dollar. In fact, while this can be the case, there are plenty of times in history when the two have risen together, fallen together or completely ignored each other. It’s best to treat the two separately when it comes to trading. The big question now is whether gold will continue to slide or find support and manage to recover? Bear in mind that last November gold was trading around $1,630 yet 6 months later it hit an all-time high above $2,080.
Check out gold…
🔸 Looking ahead to next week
The economic data calendar is relatively light in terms of important data, at least at the start of the week. It is still quite busy with second-order releases, although there will be plenty of interest in the US ISM Manufacturing PMI which comes out on Monday. We then have interest rate decisions from the Reserve Bank of Australia and Reserve Bank of New Zealand on Tuesday and Wednesday respectively. Also on Wednesday we have the latest US ADP Non-Farm Employment Change and ISM Services PMI. Thursday brings the US Weekly Jobless numbers. But the big event will be Friday’s US Non-Farm Payroll update and Unemployment Rate. US employment data is regaining its position as the key monthly economic release, having paid second fiddle to inflation numbers for the last two years. The Federal Reserve appear somewhat flummoxed by the strength of the US economy, and the unemployment numbers which remain near 60-year lows, despite the huge increase in borrowing costs since March last year. Continued tightness in the labour market has raised concerns that future wage demands will lead to another spike in inflation. Currently, the consensus view is that the Federal Reserve will become less hawkish once Non-Farm Payrolls show a decisive lower trend.
Q3 earnings season
October is another of those months where there’s no monetary policy meeting from the US Federal Reserve. We have to steel ourselves for an extra day until 1st November to hear whether there will be another hike in the Fed Funds rate or not. But October still has plenty to offer, including the opening fortnight of the third quarter earnings season. This kicks off on Friday 13th, when we’ll hear from JP Morgan, Citigroup, Wells Fargo, United Health, Taiwan Semiconductor Manufacturing Company and Delta Airlines amongst others. Once again, analysts are keeping their forecasts modest, so forward guidance will be key.
Stocks struggle through September
Global stock indices, led by the US, struggled to find a foothold in September. At the time of writing (Friday morning), and despite a positive start to trading, the Dow is on course to end the month 3% lower, the S&P 500 is down around 4.6% while the tech-heavy NASDAQ 100 has dropped around 6%. Several factors contributed to September’s weakness. The first two weeks were relatively benign, with the major US stock indices appearing to consolidate following a rally over the last fortnight of August. This ensured that the sell-off was all the more dramatic as it took place over two weeks rather than four. The catalyst for the pull-back was the hotter-than-expected CPI readings. This upset sentiment and saw the S&P 500 fall sharply as it failed to hold above 4,500. It didn’t take long for it to slice below 4,300 testing a band of support between 4,300 down to 4,250. The index steadied at these lower levels, and managed to push back over 4,300 on Thursday. Indicators such as the MACD suggest that the index is a touch oversold. But the S&P will need to hold support around 4,280/4,300 for the bulls to regain their confidence.
Check out the US 500…
Looking ahead
October is often considered a bad month for equities, thanks to the devastating crashes experienced in 1907, 1929 and 1987. But these events paint a misleading picture. October is often a volatile month, but historically it can prove to be more positive for stocks than many other months, including September. But with a possible government shutdown over the weekend, we could see some big price swings before a more discernible trend is established. Bear in mind that the third quarter earnings season gets underway on Friday 13th October, starting with some of the US’s major financial institutions.
Check out JP Morgan…
The US dollar is king – for now
The US dollar has been on a tear recently with the Dollar Index smashing above 10600 to hit its highest level since November last year. The Dollar Index measures the greenback against a basket of currencies, with the largest weighting given to the euro at 57.6%. Then there’s the Japanese yen at 13.6%, the British pound at 11.9%, the Canadian dollar at 9.1%, the Swedish krona at 4.2% and the Swiss franc at 3.6%. It appears that the European Central Bank (ECB), Bank of Japan (BOJ) and Bank of England (BOE) are all wary of damaging their respective economies by raising rates much further. Meanwhile, the message from the US Federal Reserve on interest rates is ‘higher for longer’ making the dollar an attractive place to park cash. But how much longer has this trend got to run?
Check out the Dollar Index…
Gold slumps below $1,900
Last week gold slumped below $1,900 per ounce to hit its lowest level since March this year. Some analysts blame the dollar for this, pointing out that gold is negatively correlated with the US dollar. In fact, while this can be the case, there are plenty of times in history when the two have risen together, fallen together or completely ignored each other. It’s best to treat the two separately when it comes to trading. The big question now is whether gold will continue to slide or find support and manage to recover? Bear in mind that last November gold was trading around $1,630 yet 6 months later it hit an all-time high above $2,080.
Check out gold…
🔸 Looking ahead to next week
The economic data calendar is relatively light in terms of important data, at least at the start of the week. It is still quite busy with second-order releases, although there will be plenty of interest in the US ISM Manufacturing PMI which comes out on Monday. We then have interest rate decisions from the Reserve Bank of Australia and Reserve Bank of New Zealand on Tuesday and Wednesday respectively. Also on Wednesday we have the latest US ADP Non-Farm Employment Change and ISM Services PMI. Thursday brings the US Weekly Jobless numbers. But the big event will be Friday’s US Non-Farm Payroll update and Unemployment Rate. US employment data is regaining its position as the key monthly economic release, having paid second fiddle to inflation numbers for the last two years. The Federal Reserve appear somewhat flummoxed by the strength of the US economy, and the unemployment numbers which remain near 60-year lows, despite the huge increase in borrowing costs since March last year. Continued tightness in the labour market has raised concerns that future wage demands will lead to another spike in inflation. Currently, the consensus view is that the Federal Reserve will become less hawkish once Non-Farm Payrolls show a decisive lower trend.
Q3 earnings season
October is another of those months where there’s no monetary policy meeting from the US Federal Reserve. We have to steel ourselves for an extra day until 1st November to hear whether there will be another hike in the Fed Funds rate or not. But October still has plenty to offer, including the opening fortnight of the third quarter earnings season. This kicks off on Friday 13th, when we’ll hear from JP Morgan, Citigroup, Wells Fargo, United Health, Taiwan Semiconductor Manufacturing Company and Delta Airlines amongst others. Once again, analysts are keeping their forecasts modest, so forward guidance will be key.
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