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Analysis

Stocks rally on strong economic data

BY Janne Muta

|June 28, 2023

Global equity markets rallied on strong economic data, with gains in the S&P 500, Nasdaq, and Russell 2000. Positive results in durable goods orders, consumer confidence, and new home sales propelled the rally, as well as expected GDP growth in China. US large-cap stocks, especially tech firms, outperformed small-cap stocks in 2023. In currencies, the AUD and JPY are weak due to low inflation and policy diversion respectively, while the EUR rallied against JPY with potential ECB rate hikes. Despite verbal interventions, Japanese finance ministers struggled to boost the JPY. The USD gained against CAD as Canadian inflation fell.

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Equity markets experienced a rally due to positive economic data. The S&P 500, Nasdaq, and Russell 2000 all saw gains of over 1%. This was driven by better-than-expected results in durable goods orders, consumer confidence, and new home sales. Information Technology and Consumer Discretionary sectors performed well, while cyclical sectors like industrials and materials also saw gains. In Asia, Chinese equity markets rallied on news of expected GDP growth and accelerated Q2 growth. China expects to meet the Q2 growth target of 5%.

In the US large-cap stocks have outperformed small-cap stocks in 2023, with technology companies playing a significant role. As the Fed's tightening cycle progresses, market leadership is expected to broaden, resulting in more balanced performance across asset classes like small-cap stocks.

In currency markets, the AUD and JPY remain weak due to lower inflation numbers (AUD) and central bank policy diversion. Lower inflation numbers for May (5.6%, 6.1% expected, 6.8% prior) have kept AUD under pressure. The RBA is not likely to touch the cash rate in the July meeting. EUR rallied against JPY as European Central Bank President Christine Lagarde said the central bank might hike the interest rates further. At the same time, Japanese finance ministers have tried to talk the JPY higher but the markets need to see more than just talk to stop selling Yen. Elsewhere, USD gained against CAD as Canadian inflation fell to 3.4% y/y.

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DJ

DJ is bullish above 33 830 and could trade to 34 150. Below 33 830, the market might trade down to 33 700. Dow has created a higher swing low in the 2h chart and broken out of a bearish trend channel. Therefore, the market has reversed the trend and it’s probable that the line of least resistance is now above.

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AUDUSD

AUDUSD remains in a downtrend and is bearish below 0.6680. Above the level, the market could move to 0.6720. Below 0.6680, look for a move to 0.6580 and then possibly to 0.6555. Lower inflation numbers for May (5.6%, 6.1% expected, 6.8% prior) have kept AUD under pressure. The RBA is not likely to touch the cash rate in the July meeting.

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USDJPY

USDJPY remains bullish above 143.30 as the market continues to trend higher. Above the level, look for a move to 146.10. Below 143.30, a move to 142.80 looks likely. Even though there has been some verbal propping up of JPY by Japan’s finance ministry the Yen keeps on sliding in value against the dollar.

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EURJPY

EURJPY is bullish above 155.75. Below the level, the market could move to 155.20. Above 155.75, look for a move to 160. EUR appreciated further against JPY as European Central Bank (ECB) President Christine Lagarde said inflation in the eurozone could linger for some time, and the central bank might hike the interest rates further.

The Next Main Risk Events

  • EUR ECB President Lagarde Speaks
  • GBP BOE Gov Bailey Speaks
  • JPY BOJ Gov Ueda Speaks
  • USD Fed Chair Powell Speaks
  • EUR ECB President Lagarde Speaks
  • EUR German Prelim CPI
  • USD Fed Chair Powell Speaks
  • EUR Spanish Flash CPI
  • USD Final GDP
  • USD Unemployment Claims
  • USD Final GDP Price Index
  • USD Pending Home Sales
  • JPY Tokyo Core CPI
  • CNY Manufacturing PMI
  • CNY Non-Manufacturing PMI
  • NZD RBNZ Statement of Intent
  • EUR CPI Flash Estimate
  • EUR Core CPI Flash Estimate
  • CAD GDP
  • USD Core PCE Price Index
  • USD Revised UoM Consumer Sentiment
  • CAD BOC Business Outlook Survey

For more information and details see the TIOmarkets economic calendar.


Trade Safe!

Janne Muta
Chief Market Analyst
TIOmarkets.com

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Janne Muta

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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