Regional bank shares drag down indices

The major US equity indices lost quite a bit of ground yesterday. The Dow Jones Industrial Average was down by about 600 points at its lowest point of the session. The blue-chip index concluded the day with a loss of 1.1%. Meanwhile, the S&P 500 and the Nasdaq also declined 1.2% and 1.1% respectively. Weakness in regional bank shares contributed to the bearishness. PacWest shares plunged by 27%, and Western Alliance saw a decline of 15% as concerns over financial stability persisted despite the takeover of First Republic Bank over the weekend.

US bond yields dropped from 3.574% to 3.430%, leading to an increase in the prices of gold and silver. With bonds, gold, silver, and JPY trading higher, and 10 out of eleven S&P 500 sectors trading lower (with energy losing over 4%), it seems that investors are now seeking safe havens. They are concerned, now only about the banking sector but also about the state of the economy. Recession fears are growing.

High inflation erodes both the consumer's ability to spend and companies' earnings. Only companies with the ability to maintain pricing power can hope to preserve their profit margins to some extent.

However, for traders, a certain level of uncertainty is welcome as it provides volatility and better trading opportunities. Today's ADP report, ISM services PMI, and the FOMC meeting are likely to contribute to more price swings and additional trading opportunities. The Fed is expected to raise its benchmark interest rate by 25 basis points. This would bring the target range to 5% - 5.25%. It’s also widely expected the Fed will pause for a period of time to monitor the impact of the previous rate hikes.

Gold

Gold is bullish above 2003 dollars and has now broken above the 2012 resistance level. The strong upside momentum yesterday indicates higher prices and might take the market to 2030, a level we referred to on the April 28th analysis. A failure to stay above the 2003 support level, could lead to a further fluctuation in the range.

Silver

Silver remains bullish above 24.50. Below the level, silver might trade down to 23.85. Above the 24.50 level, the nearest key resistance levels are 25.90 and 26.08. Silver is in a sideways mode after rallying strongly for five weeks. The market hit some supply and has been trying to work through the resistance levels created by a topping formation created a year ago. In order for this market to rally strongly we need to see a decisive move above 26.08. Until then, the market should be traded using mean reversion strategies.

GBPUSD

GBPUSD remains bullish above 1.2436. Below the level, Cable might trade down to 1.2415. Nothing much has changed from yesterday’s analysis on Cable. The market moved to the 1.2436 level and bounced higher so a move to 1.2584 looks likely and we might also see a move to 1.2660 on extension (as long as the upside momentum is maintained).

The Next Main Risk Events

• USD ADP Non-Farm Employment Change
• USD ISM Services PMI
• USD FOMC Statement
• USD Federal Funds Rate
• USD FOMC Press Conference
• EUR Main Refinancing Rate
• EUR Monetary Policy Statement
• USD Unemployment Claims
• EUR ECB Press Conference
• CAD Ivey PMI
• CAD BOC Gov Macklem Speaks
• AUD RBA Monetary Policy Statement
• CHF CPI m/m
• CHF SNB Chairman Jordan Speaks
• CAD Employment Change
• CAD Unemployment Rate
• USD Average Hourly Earnings
• USD Non-Farm Employment Change
• USD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets

DISCLAIMER: TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.

Janne Muta, M.Sc in FinanceChief Market Analyst

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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