Stocks experienced falls in early Monday trading after Friday's bullish session, driven by improvements in July PMIs, signaling optimism for European markets.
However, the Germany30 index has not yet managed to regain momentum to overcome the resistance zone located at the highs of 15,797 while waiting for new figures to support an upward momentum. The IFO figure released today did not help, as it missed expectations.
Fed’s upcoming meeting
This week's most important event could be the Federal Reserve meeting, although the markets don't expect any changes in interest rates or the bond purchase program. At the previous meeting, the Federal Reserve changed its bias from extremely dovish to moderately dovish by mentioning two rate hikes for 2023. However, Mr Powell ruled out the possibility of a radical change in monetary policy in the short term due to uncertainty surrounding the evolution of the economic recovery. He downplayed the last inflationary upswing by considering it a transitory phenomenon.
Also, no announcement is expected regarding the start of the bond purchase reduction, which could occur at the next meeting in Jackson Hole on August 26. The potential change in the Fed's monetary policy will continue to depend mainly on employment data, the main objective of monetary policy, which still does not show a solid recovery to approach the level of full employment. However, the data inflation rates that continue to rise could be a decisive factor when starting the "tapering". Although it is not expected for this meeting, any unexpected comment could have a significant impact on the markets and especially on the U.S. Dollar and U.S. treasury bonds.
The North American currency maintains its bullish tone, although without a clear continuation of the movement. The USD /JPY, which is highly correlated with the U.S Treasury Bond Yields, lost some ground today and did not manage to overcome the resistance zone located at 110.75. The RSI indicator is in neutral territory, with everything depending on the evolution of long-term interest rates and the Fed's other monetary policy decisions.
Sources: Bloomberg, reuters.com.
The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.
As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).
The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.
The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.
JME Financial Services (Pty) Ltd trading as ZA.CAPEX.COM acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via ZA.CAPEX.COM, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15. Magnasale Trading Ltd is the principal to the CFD purchased by investors