July 16 Weekly Market Review
Weekly Market Analysis by OptionRally
Financial Market Overview
After a difficult week, the stock markets finally received some good cheer last Friday after JPMorgan posted better-than-expected earnings and China alleviated concerns about its economic growth. Despite registering credit losses amounting to $4.4 billion, the shares of JPMorgan still surged by over 6% on Friday after the bank informed the markets that it had recorded a profit of almost $5 billion in its last trading quarter. China also impressed investors last Friday after it issued GDP growth of 7.6%, which although registered a sixth quarter decline, was much better than expected. Also on Friday, the US Labor Department published its producer price index which surprised the markets by recording an unexpected rise of 0.1% in June. In addition, a major US consumer confidence was issued disclosing a significant decline from 73.1 in June to 72.0. Sources cited that the main reason for this disappointing result was that American citizens were pessimistic about their financial and job prospects.
The markets will focus closely this week on any progress made by those measures recently introduced at the EU Summit to alleviate the deteriorating European debt crisis. For example, the yields of the Spanish 10-year bond will be under close scrutiny over the coming days to determine if they are able to stay below their critical 7% level. Europe is scheduled to release a number of important economic indicators this week including the Eurozone June CPI (today) and the German July ZEW survey (Tuesday). The European Central Bank will also convene at its mid-month meeting on Thursday. The USA will publish its June Retail Sales today following by its Consumer Price index tomorrow. In addition, the Fed Chairman, Ben Bernanke, is scheduled to testify before the US Congress tomorrow. Investors will scrutinize his every word in order to detect any shift in Fed policies towards fresh stimulus action especially following the release of another disappointing labor report earlier this month.
The Euro managed to gain a respite from the relentless USD pressure last Friday with the EURUSD rallying by 30 pips to close at 1.2240. The pair gained support from the welcoming news issued by JP Morgan and China causing the EURUSD to bounce form lows not seen in two years. However, the Euro is still prone to weakness because the Eurozone has not achieved any real progress in resolving its debt crisis. For example, both Spain and Italy are still combating unsustainable borrowing costs. In addition, the recent deposit rate cut by the ECB is driving money out of Europe. In contrast, the US economy is not suffering badly enough to warrant further quantitative easing which creates the ideal environment for the USD to strengthen further. As such, sell the pair if price drops below 1.2167.
The British pound rallied strongly against the USD last Friday with the GBPUSD surging by nearly 140 pips. The GBP fared better than most other major currencies against the USD last week as it acquired support from the release of much better-than-expected UK economic indicators including manufacturing and industrial productions. In addition, the struggling USA economy has been bullish for the British pound which also received a further boost from the Chinese and JPMorgan developments of last Friday. The UK is scheduled to publish a number of important economic indicators this week including its Claimant Count Change (Wednesday) and Retail Sales (Thursday). Despite its bullish rally last Friday, the GBPUSD is still trading in a strong bearish channel with the UK economy under intense pressure from Europe and its own highly stressed construction and housing sectors. As such, sell the pair if price slumps below 1.5445.
The Australian dollar traded almost flat against the USD over the last two weeks after the AUDUSD rallied by almost 50 pips last Friday. The AUD has been holding its own against the USD of late because the Australian economy has been outperforming that of the United States. However, the release of a weak Australian labor report last week prevented the AUD from taking further advantage of this situation. Australia is scheduled to release six important economic indicators next week including its Monetary Policy Meeting Minutes (Tuesday), Quarterly Business Confidence (Thursday) and Import Prices (Friday). Most analysts are now slightly favoring the AUDUSD to weaken in the short-term as the Australian dollar is still vulnerable to the slowdown in the global economy, in general, and the Chinese one, in particular. As such, sell the pair if price slips under 1.0152.
Despite weakening significantly against the USD during the earlier part of last week, the Swissie managed to pare almost all its losses after rallying on Friday following the news released by China and JPMorgan. The USDCHF dropped by almost 25 pips to close within a whisker of its 0.9800 level. The economic uncertainties from the USA and the deteriorating European debt crisis helped the CHF to hold its own against the US dollar last week. The Swiss Franc also gained support from the release of better-than-expected economic indicators last week including a lower unemployment rate and strong retail sales. Three important Swiss economic postings are scheduled for publication over the coming days including Industrial Production (Monday), ZEW Expectations (Wednesday) and Trade Balance (Thursday). With the European debt crisis and the global economic slowdown weighing heavily on the CHF, buy the USDCHF if price jumps above 0.9836.
The price of Gold rallied on Friday after the precious metal had endured significant bearish pressure during most of last week. Gold appreciated in value by following the general surge in commodities and stocks after China advised last Friday that its economic growth was better than most analysts had feared. The directional movements of the price of gold are particularly sensitive to the policies issued by the global central banks. Consequently, as the Chinese GDP figure is still at a level which could prompt the instigation of further stimulus measures, gold will receive another boost should such an action be implemented. With a new bullish bias prevailing, buy gold if its price breaks above $1,594.10 per oz.
The price of oil rose on Friday after the commodity and stock markets gained a welcoming boost from encouraging Chinese news. As this bullish tone should prevail at least in the short-term, buy oil if its price climbs above $88.98 per barrel.
Wells Fargo witnessed its shares soar by 1.4% last Friday after it announced a 17% growth in its quarterly profits. The fourth largest bank in the US cited improved credit quality and rising mortgage banking revenues as the primary reasons behind this impressive result. Well Fargo succeeded in increasing this year’s net income to $4.6 billion from $3.9 billion a year ago.
Marriott International informed the markets last Friday that it would need to revise its revenue forecasts downwards citing weaker sales in the Middle East, China and India as the primary reason for this disappointing action. A spokesperson advised that the company’s international trade was suffering from the impacts of the European debt crisis and the global economic slowdown. Following these announcements, the shares of Marriott slumped by 5% during Friday’s trading session.
The rally in the markets last Friday helped the shares of both Apple and Google to appreciate in value with those of the former climbing by 1.01% to $604.97 and those of Google surging by 1.06% to $576.52. As the stock markets should now continue to benefit from their new bullish momentum at least in the short-term, consider buying Apple shares if price breaks above $606.76 and buy Google if its share price jumps higher than $578.96.