By Naeem Aslam
European and US stock futures are trading lower as traders take breather and the stock market hits a new high this week.
Earnings season continues to remain the main focus among investors and traders as that is providing the main catalyst for risk-on or risk-off trading.
So far, the results especially from the US banking sector have been highly promising with an optimistic view as many banks do not believe the US economy will be heading for hard landing. The odds of such an event taking place are very low and that is less than a 15% chance of the US economy falling into a recession or heading for a hard landing.
Although, the banking sector is very much in the spotlight, the lime light remains on AI and semi-conductor chip makers which saw a massive rally as Nvidia surged towards its all-time high. On Tuesday we saw a lot of investors taking some profit off the table ahead of the earnings.
It seems that the massive boom in the artificial intelligence space is not over yet, and investors are highly optimistic ahead of tech earnings. Investors expect another blowout quarter from Nvidia as big techs like Microsoft, Meta, Google and Amazon have been buying Nvidia GPUs in massive bulk orders to boost their computer power clusters.
UK’s CPI data
We had a major announcement concerning the UK economy and that is the inflation data. Traders have been eagerly waiting for this number as they know that the Bank of England’s monetary policy decision is very much dependent on this. And on Wednesday we had a blow-out number in terms of the UK CPI.
The CPI y/y is officially below the BoE’s target of 2%. Wednesday’s reading fell to 1.7% when the forecast for this number was 1.9%. It is amazing to see such a dramatic drop in the CPI and the news brought nothing but good things for the Bank of England which has been hesitant to cut rates aggressively. Now, the green signals are Big and Bright for the BoE and it must do whatever is absolutely necessary.
As the UK CPI dropped to below the bank’s target, we must now see the BoE to bank on this opportunity and move the interest rates back to their normal levels. In fact, it would not be insane to say that the data has allowed the bank to even think about an interest rate cut of 0.75%.
In terms of technical analysis for the GBPUSD, we have seen a sharp move to the downside as the GBP has become weaker on the back of expectations that the BOE will cut rates aggressively. The price is reaching towards an important support level which is mentioned on the chart below.
GBP chart by HowToTradeMarket Performance
The Nasdaq 100 tech index fell 1.01% on Tuesday and finished the day at 18,315. The index is only 2% below its all-time high. The other two major indices, the S&P 500, also declined 0.76%, closing at 5,815, while the Dow Jones Industrial Average (DJIA), closed lower at 42,724 with a loss of 324 points.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.
