After a strong performance in the first seven months of the year, global equity markets are coming under increasing pressure. It appears that the market is becoming increasingly nervous about the possibility of weaker performance in the second half of the year and is looking for reasons to take profits.
A downgrade by Fitch has weighed on U.S. markets – but I expect the downgrade (unjustified in my view) to have limited impact. We also see that US Treasuries have already stabilized. The robust U.S. economy is reason enough to see the U.S. economy in better shape than most economies, even though the U.S. budget deficit has increased significantly in recent years.
More importantly, investors are increasingly concerned about an imminent slowdown in economic activity, which is already clearly visible in Europe. The Chinese economy is not recovering as hoped, and persistently disappointing Chinese economic data continues to weigh on market sentiment. A series of mixed earnings reports also added significantly to concerns about the growth outlook.
Advanced Micro Devices surged in after-hours trading after the company beat second-quarter estimates and said it continues to make progress in the artificial intelligence space – though revenue expectations are on the low side, so the stock continues to benefit from AI hype (in some ways, rightfully so). Other companies such as Electronic Arts, Starbucks, and Pinterest also showed signs of weakening and declined. Ferrari gave a disappointing outlook and German medical technology company Siemens Healthineers fell sharply after missing estimates, dragging the DAX lower. German luxury fashion retailer Hugo Boss reported a drop in profit margins and a rise in inventories, adding to concerns about slowing demand and falling profit margins.
The rather unreliable ADP labor market data pointed to a sharp increase in hiring in the U.S. in July. That's not what the Fed would like to see – adding some headwinds to equities on fears that the Fed may hint at another 25-BP rate hike.
Oil prices continued to rise after U.S. inventories fell sharply, as we expected. This shows that U.S. demand remains strong and that the global oil market continues to tighten.
The main focus will continue to be on earnings reports – especially since the economic calendar today is not very extensive. Although we may see some dip buying, I expect the market to react more strongly to signs of weakness.
The USD may remain in demand despite the Fitch downgrade, benefiting from deteriorating risk sentiment and elevated US Treasury yields. The US economy remains on the upswing. After recent sharp losses, I also see upside for the JPY as it benefits from rising safe haven demand and dip buying after being/remaining oversold.
👁 ROB'S MARKET OVERVIEW:
August 2, 2023
🇺🇸 US Markets ➡️/↘️
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ↘️
Financial Stocks ➡️/↘️
Defensive Stocks ➡️
Energy Stocks ➡️
Materials Stocks ➡️/↘️
USD, JPY ➡️/↗️
GBP, CHF ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ➡️/↗️ (oil market continues to tighten)
Natural Gas prices ➡️/↘️
Metal prices ➡️/↘️
Precious Metal prices ➡️/↗️ (recovery on higher safe haven demand – little upside potential in US Treasury yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)