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The positive market sentiment is still fragile

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Economic data released on Thursday, including jobless claims, pending home sales, and GDP, showed a slowing US economy

The GDP contracted 1.5% in the first quarter and declined 3.9% in April.

 

However, the market viewed these weak figures for the economy positively. They could lead to a moderate shift in the Federal Reserve after the increases expected during the summer: two of 50 bps.

Minutes from the Fed's May meeting, released on Wednesday, showed majority-backed rate hikes of 50 basis points each in June and July to combat inflation. This eased market concerns about more aggressive action by the Fed that could lead the US economy into a recession.

 

However, that positive sentiment is still fragile, as Fed members appeared to leave room to take more aggressive action if inflation persists at its current levels.

 

Wall Street indices rose on Thursday in a broad rally on improving expectations for interest rates and on better results published by retail stores that eliminate fears that supply problems and inflation may have affected the whole sector.

 

Today a relevant figure for the market will be published: personal consumption expenditure, the data preferred by the Federal Reserve to gauge the evolution of inflation. Investors will closely follow economic data since any sign of improvement, a lower figure, or at least below expectations would be interpreted positively by investors. It would increase the Fed’s chances to reduce the number of increases in interest rates that the market anticipates. And this would be a boost for stock indices.

 

The Dow Jones 30 rose 1.70% yesterday, reaching a resistance level around 32,650, which would open the way for further advances towards the next reference zone at 34,000.

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Sources: Bloomberg, Reuters

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.