Investor’s Change Interest Rate Outlook After Davos Comments!

All global indices declined on Tuesday and continue declining in this morning’s Asian Session. From US Indices the Dow Jones declined the most.
Goldman Sachs beat earnings expectations by 28% and revenue read 3% higher in the last quarter of 2023. Goldman Sachs stocks rose 0.71%.
Investors are waiting for the release of the Charles Schwab quarterly earnings report. The stock has fallen almost 4% over the past 5 days due to lower earnings expectations.
The US Dollar Index rises to its highest level since the first half of December 2023. However, the Pound sees the highest gains after inflation rose to 4.00%.

EURUSD – Dollar Rises To December Highs!

The price of the exchange rate fell 0.67% on Tuesday and is also trading lower this morning. The US Dollar Index is trading higher, but the Euro is also trading higher against all currencies except the US Dollar and British Pound. Therefore, traders should also be cautious about possible Euro strength. Nonetheless, the current momentum is fully on the side of the Dollar which has risen to the highest price since December 13th.  The main price driver is investors reevaluating the future interest rate path.

Investors are scaling back bets that rate cuts will take place as early as March and that the Fed will hike up to six times in 2023. This is due to global economists and bankers advising the Federal Reserve is not likely to cut as much as markets are pricing into the market. As a result, investors are reducing exposure to riskier assets and keeping hold of the high yielding Dollar. Comments from the US Federal Reserve Board member Christopher Weller particularly supported the Dollar. Mr Weller stated that inflation is close to its target but will need to reach the target and remain there in order to see significant changes to interest rates.

The Euro is gaining some ground as President Lagarde’s speech this morning added a further hawkish tone. According to President Lagarde, a downward slope is seen in inflation but not at the pace the bank would have liked. Presidents of the German, French and Austrian national banks have advised rate cuts are not likely in the coming months.

The price of the EURUSD is likely to also depend on this afternoon’s Retail Sales data. Retail Sales are expected to read slightly better than the previous month and a higher figure can support the Dollar. Technical analysis currently points towards Dollar strength, but signals are likely to change if the exchange rate increases above 1.08975 and 1.09311.

USA30 – Goldman Sachs Beat Earnings Expectations But Sentiment Remains Low!

The USA30 has declined to its lowest price since December 21st after pressure from bankers, economists and the latest UK inflation rate. The price is now trading below the previous support level and below moving averages which indicates sellers are in control. The price ended 0.57% lower on Tuesday and has declined 0.42% so far during this morning’s Asian session.

The downward price movement is due to the more hawkish comments from bankers and economists. As a result, the more restrictive monetary policy, higher rates and more expensive Dollar make US stocks less attractive for investors. In addition to this, all global stocks are declining which is providing further indications of global investor sentiment.

The main downward movement is also gaining momentum since the release of the latest UK inflation data. UK inflation rose from 3.9% to 4.0% instead of declining to 3.8% as per analysts’ expectations. As a result, the US, EU and UK have now all seen inflation rise meaning more pressure on Central Banks to keep rates unchanged. Higher interest rates for longer, paired with higher inflation, results in a less attractive stock market. In addition to this, these factors also result in a slightly lower “soft landing” possibility.

A positive factor for the USA30 as well as the USA500 is the positive earnings from Goldman Sachs. Goldman Sachs is the third most influential stock for the USA30 but the stock only saw limited gains due to poor sentiment in the market in general. Goldman Sachs beat the Earnings Per Share expectations by 28% and revenue read 3% higher in the last quarter of 2023.

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Michalis Efthymiou

Market Analyst

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