Focus on bank earnings
BY Janne Muta|April 18, 2023
US equity indices closed higher with the S&P 500 rising 0.3%, the DJ up 0.3%, and the Nasdaq Composite increasing 0.3%. After this almost flatlined day we are likely to see more volatility as earnings reports from financial companies and Tesla, Johnson & Johnson, and Netflix kick in. Analysts expect overall S&P 500 earnings to decline for a second straight quarter. Keep an eye on the news flow regarding the results from regional banks.
As the banking crisis is not very far behind us yet and many smaller and mid-sized banks saw deposits feeling to the bigger banks the earnings reports from the banking sector could provide us with more volatility in the indices level too. In the FX markets, the next big risk event is the Canadian inflation reading and then the UK CPI report on Wednesday morning.
CAD has been strengthening ahead of today’s inflation numbers as the BOC is expected to hike rates in the coming months. The bank tries to bring inflation down to its 2% target. This goal is projected to be achieved by the end of 2024.
The central bank is focused on taming inflation now to avoid having to make drastic moves in the future. Therefore, rate cuts are believed to be out of the question in the near future. However, should the labour market react negatively the possibility of easing monetary policy may arise.
Gold could turn bearish after last week’s failure to continue the rally and close higher. The loss of momentum is bad news for the bulls but before we can conclude that the market is now more likely to trade lower, it needs to take out the 1981 support level. If the level breaks, look for a move to 1955 or so. Above 1981, the market probably tests the minor resistance level in 2015.
DJ is bullish above 33 577. Below the level, the market probably trades down to 33 340. The trend is up so a move to 34 330 or so looks likely if the 33 577 level isn’t decisively violated.
GBPUSD is bullish above 1.2344. Below the level, Cable could move to 1.2260 and then to 1.2180 on extension. Last week’s loss of momentum suggests the rally could be over but currently, the market is rallying higher intraday. If we see a decisive rally above 1.2438 the market might have the strength to rally to 1.2500 or so today. Tomorrow's CPI report and the way the market reacts to it will give us more guidance on the longer-term picture.
USDCAD could be turning bullish above 1.3263. The market has drifted down to this weekly support so it’s worth monitoring if the bulls now take over and push the market higher. Today’s CPI number and the subsequent market reaction are key to how the future price action unfolds. The bulls need to take out the resistance level at 1.3405 to turn the current bearish trend.
The Next Main Risk Events
- EUR German ZEW Economic Sentiment
- CAD CPI
- CAD Median CPI
- CAD Trimmed CPI
- CAD Common CPI
- CAD BOC Gov Macklem Speaks
- GBP CPI
- CHF Gov Board Member Maechler Speaks
- NZD CPI
- USD Unemployment Claims
- USD Philly Fed Manufacturing Index
- USD Existing Home Sales
- CAD BOC Gov Macklem Speaks
- USD FOMC Member Waller Speaks
- USD FOMC Member Harker Speaks
- GBP Retail Sales m/m
- EUR French Flash Manufacturing PMI
- EUR French Flash Services PMI
- EUR German Flash Manufacturing PMI
- EUR German Flash Services PMI
- EUR Flash Manufacturing PMI
- EUR Flash Services PMI
- GBP Flash Manufacturing PMI
- GBP Flash Services PMI
- CAD Core Retail Sales m/m
- CAD Retail Sales m/m
- USD Flash Manufacturing PMI
- USD Flash Services PMI
For more information and details see the TIOmarkets economic calendar.
Chief Market Analyst
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Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.
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