Weekly Outlook

Tech-Heavy stocks surged, Canada’s Dec retail sales beat expectations while annual inflation significantly drops, PMIs improving with services but Germany worsens, RBNZ rate decision ahead

| 26 February, 2024 at 15:58 GMT

PREVIOUS WEEK’S EVENTS (Week 19-23.02.2024)

Announcements:

U.S. Economy

Global stocks rallied on the 21st Feb and after 22:00. All three benchmark U.S. indices experienced a big jump to the upside. The tech-heavy Nasdaq 100 index surged after the earnings announcement. The boss of Nvidia said artificial intelligence (AI) is at a “tipping point” as it announced record sales. It reported that revenues surged by 265% in the three months to 28th January, compared to a year earlier. Nvidia on Wednesday experienced shares up by 10% after-hours. The company’s success indicates that the AI boom is much more than just a stock market narrative.

The late-day stock jump pushed up the shares of other AI-related companies including chip designer Arm Holdings. Nvidia and other hardware suppliers linked to AI computing added $160 billion of combined stock market value.

Canada Economy

Canada’s December retail sales slightly beat expectations as people spent more during the holidays but they likely declined at the start of the year.

Retail sales grew by 0.9% in December from November, more than a forecast for a 0.8% gain, from a flat reading in November, which was upwardly revised from -0.2% previously.

The Canadian economy could slow further at the half of this year since the interest rates remain high affecting households and spending.

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Canada Inflation

Canada’s CPI data release yesterday showed that Canada’s annual inflation rate slowed more than expected to 2.9% in January and core price measures also eased. Headline inflation has dipped below 3% and that prompted money markets to hike bets for a rate cut in April.

The Bank of Canada targets inflation at 2%. Two of its three core measures of underlying inflation also edged down. CPI-median slowed to 3.3%, the lowest since November 2021, while CPI-trim decreased to 3.4%, the lowest since August 2021.

The Bank of Canada’s next policy announcement is March 6, and expectations are that rates will stay on hold at a 22-year high of 5%. Analysts polled by Reuters had forecast inflation to tick down to 3.3% from 3.4% in December.

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Sources:

https://www.reuters.com/world/americas/canadas-inflation-rate-drops-more-than-expected-29-january-2024-02-20/

https://www.reuters.com/technology/nvidia-forecasts-first-quarter-revenue-above-estimates-2024-02-21/

https://www.wsj.com/economy/consumers/canada-retail-sales-rise-0-9-in-december-but-fall-in-january-5468c64b

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Currency Markets Impact – Past Releases (Week 19-23.02.2024)

Server Time / Timezone EEST (UTC+02:00)

Some notable volatility was recorded for AUD pairs as the RBA Monetary Policy Meeting Minutes release took place on the 20th Feb. RBA Minutes: The board considered an interest-rate hike, and saw the pause case as stronger though. They needed ‘Some Time’ to be certain of an inflation decline.

The January CPI figures for Canada were reported lower than expected, raising the odds of a rate cut at the Bank of Canada happening as early as April. The market reacted with CAD The USDCAD jumped more than 50 pips.

On the 21st Feb, it was reported that the seasonally adjusted AU WPI rose 0.9% for the December quarter of 2023 and 4.2% over the year. No major impact was recorded in the market.

The FOMC Meeting Minutes report: apparent was the need to see more progress that inflation is going towards the 2% target before proceeding to rate cuts. Inflation risks are still considered dangerous. Downside risks of rates staying too high, was the main concern of some officials. During that time of the release, there was no major impact on the market. The USD suffered a slight depreciation. The immediate next day though, the USD plunged.

On the 21st Feb, after 22:00 the U.S. indices surged. The S&P 500 registered an all-time closing high on the 22nd Feb due to strong earnings (Check Nvidia case).

PMI releases:

Eurozone PMIs:

The French economy is in contraction with PMis improving. The downturn weakens noticeably. The private sector output levels fell at the weakest pace in the current nine-month period of decline. New orders fell at the softest rate since last May and employment rose for the first time since October 2023. Business confidence strengthened to a seven-month high.

The German economy is worsening. PMIs in contraction with the manufacturing sector suffering the most, a 42.3 points figure. A further drop in business activity across the eurozone’s largest economy, a slightly faster contraction led by a sharp and accelerated reduction in manufacturing output. Demand for goods and services continued to weaken, although employment held broadly steady.

The Eurozone PMIs show that it is the services sector that sees improvement. The reported services PMI figure was exactly 50 points, right on the threshold. The Eurozone downturn eased as output stabilisation in the service sector offset a further steep downturn in manufacturing. Business confidence about the year ahead improved.

United Kingdom PMIs:

In the U.K. the services sector is strong with business expanding at a steady pace as per the PMI figure of 54.3. This solid rate of service sector growth helps to boost U.K. private sector output. A solid improvement in customer demand and a sharp rise in new work.

United States PMIs

The U.S. manufacturing business expands at its fastest pace since 2022 according to the latest reports. It currently experienced stronger orders growth, orders climbed to the highest since May 2022. Factory output expanded the most in 10 months. Both the manufacturing and the services PMIs record figures over 50, showing expansion and leading in overall business performance compared with the other regions.

On the 22nd Feb, Canada’s monthly retail sales reports showed that the Core figure was lower than expected but still in growth by 0.6%. The non-core Retail Sales figure also recorded growth of 0.9%. There was no major impact on the market at the time of the release.

Unemployment claims for the U.S. were reported lower than expected. These claims dropped 12K to 201K in February, staying close to the mark of 200K and signalling that the U.S. labour market is still going strong. This contributed to the USD seeing some more appreciation against other currencies during the N.American session.

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FOREX MARKETS MONITOR

Dollar Index (US_DX)

The dollar index showed a downward trend last week. Intraday shocks were having a negative impact on the USD pushing the index to the downside. It however recovered multiple times and reversed to the 30-period MA as depicted on the chart. The USD reacted heavily to the CPI news for Canada on the 20th Feb and on the surge of high-tech stock surge during the 21st-22nd Feb. It however remained settled close to the MA. There is no clear signal of how the USD will be affected in the near future, however, the next important date is 20th March at which it is widely expected that the Fed will keep rates steady. The same applies even at the next meeting on the 1st of May with the probability for no change in rates currently reported at near 82%. This means elevated rates for longer causing the USD to keep its strength.

EURUSD

The EURUSD experienced the opposite path, an uptrend due to the overall dollar weakening and moderate EUR appreciation during the last week. It is clear that the intraday shocks presented on the chart are caused by effects on the dollar. The pair remains settled close to the 30-period MA.

USDCAD

The USDCAD moved sideways overall but with high volatility as several fundamental factors have affected the currency pair. On the 20th Feb, we saw an intraday shock at 15:30 from Canada’s CPI data release showing lower-than-expected inflation figures. This caused the CAD to depreciate instead of appreciating, while the USD was recovering, thus the pair rose moderately keeping its path above the 30-period MA. On the 21st Feb the pair started to move to the downside heavily, crossing the MA on its way down reaching the support at 1.34400 on the 22nd Feb. This was a direct result of USD depreciation which took place during the high-tech stock market surge. The dollar regained its strength soon and the pair returned to higher levels above the MA.

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CRYPTO MARKETS MONITOR

BTCUSD

Bitcoin settled sideways for now but is governed with high volatility on its way around the 30-period MA. 52,000 USD seems to be the important resistance level. The support is apparently at 50,500 USD. On the 24th Feb, the price moved to the upside, reversing from the previous drop and after the retracement it settled near the 61.8 Fibo level near 51,450 USD. Considering recent data and its volatility, unless an important fundamental factor takes place, the price could move to the downside continuing the path around the MA, experiencing big deviations from it.

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NEXT WEEK’S EVENTS (26.02 – 01.03.2024)

Coming up:

The Reserve Bank of New Zealand (RBNZ) is going to decide on rates this week.

Durable goods orders for the U.S. are going to be released expecting some moderate volatility.

PMIs for the Manufacturing sector will be released this Friday.

The Core PCE Price Index is going to be released this week, important for the Fed in making decisions, considering that it is relevant to inflation.

G20 Meetings are also taking place this week.

Currency Markets Impact:

New Home Sales figure on the 26th Feb is expected to be reported higher reflecting the optimism of the American about the future’s lower inflation expectations and interest rates. No major impact is expected in the market.

Durable Goods orders for the U.S. will be reported on the 27th Feb at 15:30 and will probably cause a moderate intraday shock affecting the USD The lower expected figure reflects the expectation of an easing in spending. Higher than expected figure release could push USD appreciation during that time.

At 17:00 the CB Consumer Confidence report will shed light on how the consumers are forming expectations, taking into consideration the recent developments in regards to inflation figures and expectations about short-term interest rates. The Richmond Manufacturing index is expected to see an improvement to a less negative figure.

Australia’s inflation figure will be reported during the Asian session on the 28th Feb. The figure is expected to be reported higher despite the fact that the RBA rose and kept the Cash Rate at 4.35% since November last year. In addition, a recent retail sales report recorded a decline. We could see a surprise here, a lower-than-expected figure, causing the AUD to depreciate for a while before retracing.

The RBNZ will decide on rates and is expected to keep the OCR steady at 5.5%. The NZD pairs could see some higher volatility later though during the press conference at 4:00 if there is an important statement that will form different expectations for interest rate policy.

Australia’s Retail Sales report will be released on the 29th Feb and is expected to have recorded growth instead of a decline for January. An intraday shock during the Asian session cannot be excluded affecting AUD

Canada’s GDP figure is going to be released on the 29th Feb, expected to grow at a steady pace of 0.20% monthly. The CAD pairs during that time could see some more than usual moderate volatility.

The U.S. core PCE price index, a measure of inflation, is highly taken into account by the Fed and is going to be released on the same day. This figure is expected to be reported higher justifying the analyst expectations that there will be no cuts in March and even at May’s meeting. If inflation is not showing strong evidence of a downtrend rates will be kept elevated as per the Fed’s recent statements. A surprise to the downside will probably cause the USD to be affected greatly causing weakness at the time of the release. U.S. Unemployment Claims are expected to remain close to 200K but slightly higher than the previous figure having some effect on the USD pairs during the release.

Manufacturing PMIs are going to be released on Friday 1st March and are expected to cause some increase in volatility levels, especially after the start of the European session.

Flash Estimates for the Eurozone’s annual inflation will be reported as well on the same day and the market expects lower figures as business conditions in the Eurozone is actually worsening, considering Germany’s case, and Retail Sales are showing consistent declines month by month. The EUR pairs could see some increase in volatility upon release but no surprises are expected.

The ISM manufacturing PMI will add to the data regarding the manufacturing sector in the U.S. which is actually improving. The reported figure is expected to be closer to the 50 points threshold that separates contraction from expansion. A surprise would lead to USD pairs experiencing higher volatility during the release but no major shock is expected.

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COMMODITIES MARKETS MONITOR

U.S. Crude Oil

On the 21st the price continued with the drop but stopped when it reached the support near the 76.20 USD/b level. It soon reversed to the upside heavily, crossing the 30-period MA on its way up and reaching above 78 USD/b. The 22nd Feb was quite volatile. The price reached the resistance near 78.7 USD/b before reversing fully to the downside. On the 23rd Feb, the price moved below the MA and dropped heavily, reaching the support near 75.85 USD/b. A retracement is possible as depicted on the chart. The alternative scenario which is less probable, could cause the price to drop to 75.5 USD/b.

TradingView Analysis:

https://www.tradingview.com/chart/USOIL/BC3M2BwO-USOIL-Post-Reversal-26-02-2024/

Gold (XAUUSD)

The divergence eventually led to a drop back to 2020 USD/oz on the 21st Feb as stated in our previous analysis. After the drop, Gold reversed to the upside as the dollar depreciated heavily. On the 22nd, Gold experienced a significant drop, finally settling below the MA signalling finally the end of the uptrend. However, on the 23rd Feb, Gold moved to the downside, finding support at 2016 USD/oz and in a short period of time reversed significantly to the upside crossing the 30-period MA on its way up reaching the resistance at 2041 USD/oz. That signalled a new uptrend perhaps. The market opening found the price at the retracement level of 61.8 Fibo near 2033 USD/oz.

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EQUITY MARKETS MONITOR

NAS100 (NDX)

Price Movement

Global stocks rallied on the 21st Feb and after 22:00. All U.S. indices experienced a big jump to the upside. The tech-heavy Nasdaq 100 index jumped over 1.8%. The boss of Nvidia said artificial intelligence (AI) is at a “tipping point” as it announced record sales. It reported that revenues surged by 265% in the three months to 28th January, compared to a year earlier. On the 23rd Feb, the index moved to the upside further, breaking the 18,000 resistance level and reaching the one near the 18,100 USD before retracement took place. The RSI was showing bearish signals and according to the Fibo levels, it might drop lower to reach the 61.8 Fibo level. The other two benchmark indices have eased as well and are testing lower levels currently.

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Marios Kyriakou

Tech-Heavy stocks surged, Canada’s Dec retail sales beat expectations while annual inflation significantly drops, PMIs improving with services but Germany worsens, RBNZ rate decision ahead

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