U.S. equities finished the session into negative territory after moving in a tight range for the better part of the day. Market participants prefer to stay on the sidelines ahead of the U.S. and European central banks meetings, which are scheduled for later in the week. The Dow Jones Industrial Average slipped 2.65 points, or 0.02%, to finish the day at 13073.01, pulled lower by JPMorgan. The benchmark index declined for a ninth Monday in a row, which is the blue chip’s worst streak since July 1973. The S&P 500 dipped 0.67 points, or 0.05%, to finish at 1385.30, while the NASDAQ ended at 2945.84, erasing 12.25 points, or 0.41%. The CBOE Volatility Index, considered by many as the best indicator of fear in the market, advanced to 18. Traders rushed to buy defensive stocks with telecoms, consumer staples and utilities posting the biggest gains, while health care declined. Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble announced that they are willing make combined efforts, aimed at stabilizing the Eurozone countries. Last Thursday, ECB president Mario Draghi announced that the bank is ready to do whatever is necessary to preserve the integrity of the common currency area. On the economic front, manufacturing activity in Texas moved drastically lower in June to post its lowest reading in almost a year. Earnings season continues this week with Dow components Pfizer, Kraft and P&G scheduled to release their results in the course of the week. Other major companies, which will announce their earnings, include Comcast, General Motors, LinkedIn and Berkshire Hathaway.
Asian stocks gained on Tuesday as investors were hoping that the European Central Bank and the U.S. Federal Reserve will be forced to commit to using additional stimulus measures when they hold their meetings on Thursday and Wednesday respectively. The FTSE CNBC Asia 100 Index, which tracks the performance of markets across Asia, advanced 0.9%. The raging debt crisis in the Eurozone took its toll on Japanese manufacturing, sending the country’s Purchasing Managers Index (PMI) below 50 for a second month in a row. The index fell at the fastest pace since last year’s earthquake and tsunami, as Japanese exports for Europe and China dropped. Japan’s Nikkei share average posted its worst July performance in five years’ time as investors remained skeptical about the future of the Eurozone and about the global growth prospects, even though window dressing from fund managers sent the benchmark to a one-week closing high. The Japanese blue chip slipped 3.5% on a month-to-date basis even after the president of the European Central Bank pledged to keep the Eurozone intact, using all measures at his disposal and after market participants grew increasingly confident that the U.S. Federal Reserve will have to use further monetary stimulus measures to spur the largest economy in the world. The Nikkei advanced 0.7% to close at 8,695.06, pushing above 8,687.93, where the 50% retracement of its rally from June 4th to July 4th stands. At the same time the broader Topix index added 0.6% to 736.31. South Korean stocks pared most of the losses they posted in the first half of the trading session, finishing at a six-week high, as market participants chose to close their short positions ahead of the rate decision meetings later in the week. The Korea Composite Stock Price Index (KOSPI) advanced 2.1% to finish at 1,881.99 points. Australian stocks added 0.6% with the bank sector posting the biggest gains. A smaller-than-projected decline in building approvals also helped boost sentiment among traders. The benchmark S&P/ASX 200 index rallied 23.5 points to trade at 4,269.2 points. The index is 4.3% higher for the month of July, posting its second month of advances. In New Zealand, the benchmark NZX 50 index climbed 0.7% to 3,545. Shanghai equities slipped 0.3%, finishing the month over 5% lower after Chinese investors remained cautious on the global economy. The benchmark Shanghai Composite finished the day at 2,103.63, locking a loss of 11.3% for the past two months. Hong Kong stocks rallied for a fourth consecutive session and are on their track to finish the month with modest gains, as heavyweights such as HSBC moved into green territory. The Hang Seng Index climbed 0.9% to 19,750.1, pushing above its 200-day moving average of 19,661.8, which has acted as a significant resistance level in the past several weeks. In India, banks dropped weighing on the benchmark BSE Index, which erased 0.5%. The Reserve Bank of India decided to leave its benchmark interest rate unchanged on Tuesday even though it cut the statutory liquidity ratio (SLR) rate to 23% of deposits from the previous reading of 24%. Banking equities slipped, despite the Reserve Bank of India’s cut in the SLR, as investors grew pessimistic about the ability of the central bank to keep up with its inflation target. State Bank of India erased 2.8%, while private lender ICICI Bank declined 0.8%. In Southeast Asia, Singapore’s Straits Times Index and Malaysia’s benchmark KL Composite both dipped, down 0.5% and 0.1% respectively.
European equities remain little changed on Tuesday after they opened slightly lower. Market participants are staying predominantly on the sidelines as any heavy position ahead of the ECB and Fed meetings is seen as highly risky. The FTSEurofirst 300 was almost unchanged at 1,072.64 points, bouncing back from the low of 1,068.71 it posted earlier on. The index rallied more than 5% in the previous three sessions after Mario Draghi made his announcement on Thursday. The Stoxx Europe 600 index dipped 0.1% to 263.81 and is currently on its way to snap out of a three-day losing streak. Swiss bank UBS was one of the biggest losers among European stocks after the bank posted abysmal results for the previous quarter. The bank erased 4.9% in early Tuesday trading. Profit for the three-month period plunged 58%, hit hard by a 349 million Swiss francs loss, resulting from the participation of the bank in the Facebook IPO. BP dropped 3.6%, after profits for the second quarter were 96% lower on a massive write-down. On the economic front, data coming out of Germany indicated that the number of unemployed German workers increased by 7,000 in July, while the unemployment rate stayed at the 6.8% reading we saw last month. German equities were one of the best performers in Europe with the DAX 30 index adding 0.4% to trade at 6,801.24. The country’s biggest retailer Metro AG propelled the benchmark index higher after it confirmed its full-year forecast, even after the second-quarter earnings unexpectedly slipped. French drug maker Sanofi SA advanced 1.2%, pulling the benchmark CAC 40 index 0.1% higher to 3,325.45. Michelin was one of the biggest losers in Paris, slipping 2.4%, after J.P. Morgan downgraded the company to neutral from overweight. In the U.K., BP and the bank companies pulled the FTSE 100 index lower and the benchmark traded with a loss of 0.1% at 5,688.34. HSBC Holdings PLC plunged 1%, while Barclays PLC erased 1.9%.
As we mentioned above the Dow posted mild losses yesterday after trading in a relatively tight range almost all session long. The benchmark touched highs of 13,128 for the day before finishing at 13,073.01. Today the futures are pointing to a higher opening, but, before jumping to buy U.S. stocks, investors should bear in mind that there are a lot of economic news hitting the wires later today, most notably the CB consumer confidence. We also have some major U.S. companies reporting their results for the previous quarter, including Pfizer and Valero. Support in the Dow is provided by the psychologically important 13,000 level, while resistance stands at the triple top formation of late March around 13,250. Oscillators are all trending higher with the relative strength index at 66 and the stochastic already in overbought territory, around 92. The MACD is approaching the highs it touched in early July, but it still has some room to go.
Gold trended lower in the early hours of yesterday’s session, but in the afternoon it managed to recoup almost all its losses after even trading in green territory for a brief moment. Today the precious metal is moving in a tight range as investors are waiting for the rate meetings later in the week. Gold touched lows of 1618.95 for the session and is currently changing hands at 1623.97 dollars per troy ounce. Support in the bullion stands at the 25-period moving average, at 1616.87, while resistance, on the other hand, is provided by the peaks we touched in early July, around 1630. Oscillators are moving sideways, but they remain very close to the upper bands of their respective ranges. The relative strength index is currently standing at 68, while the stochastic is at 64. The MACD retracted from the highs it touched yesterday, but it still remains well above the key 0 level.
The currency pair failed to hold on to the gains it posted on Friday and moved both below its 50-period and its 25-period moving averages. The USD/JPY even approached the key 78.00 level, but stopped its decline well before it touched this psychologically important level. Today the yen is moving in a tight range even though some very disappointing figures were released for the Japanese household spending and about the country’s average cash earnings. Support continues to stand at the 78.00 level, while resistance has moved to the 25-period moving average, which is presenting the bulls with some serious challenge. Oscillators are moving sideways with the relative strength index at 49 and the stochastic at 31. Both indicators are very close to the lower bands of their respective ranges. The MACD is moving in a very tight range, just a whisker below the key 0 level.
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.