Daily Market Analysis

Markets In Good Spirits Amid No Signs of ‘Hard Landing’ Scenario

July 19, 2023

Global equity markets keep racking up the gains. Seven consecutive rises in the DJIA tells the story, with markets in good spirits amid no signs of an economic ‘hard landing’. With the Fed seemingly near the interest rate peak and corporate earnings season so far delivering the goods, things have been going swimmingly for risk assets of late.  

Valuations of the big tech companies will be something to watch given the strong run-up in price this year on the NASDAQ, but to date corporate earnings have not been ringing any alarm bells despite the restrictive monetary conditions that have been at play in 2023 thus far. However, it’s probably prudent to wait and see how the rest of the earnings season unfolds before popping the champagne corks too much, particularly as there are concerns about consumer sector weakness.  

The latest US Retail Sales data came in on the low side, but this did little to dampen the mood. If anything, it probably added to the case for ‘one more and done’ from the Fed. Although the core number did show more resilience than the headline retail sales reading. In any case, the US Dollar is still trying to dust itself off following the recent slump. The DXY has crept back to the 100 level, but the going is still tough and is likely to remain so unless events unfold which put a second hike from the Fed back on the table between now and year end.  

The subdued dollar is creating ideal conditions for gold to consolidate recent price gains. The precious metal is sitting below some resistance in circa the US$1985 level and seems poised to make a run at the US$2k level unless the greenback can rediscover its form sometime soon. Elsewhere, oil is making the most of the depreciating USD and the upbeat risk appetite on display in markets. While oil has been on a nice run higher over the past week there is still some lingering concern stemming from China as the economic numbers this week did not paint a pretty picture.  

The mild move higher in the USD today which put the DXY back at 100 contributed to the AUDUSD rate falling back below the 0.68 handle. The Aussie Dollar is also likely still feeling the effects of the Chinese macroeconomic indicators this week and the mild measures announced to try and boost consumer spending in the world’s second largest economy. Elsewhere, the euro and sterling are showing some signs of being in overbought territory following recent gains against the USD, with both currencies easing back from the highs.  

Looking ahead, US Housing starts will be closely watched (released Wednesday US time). And of course, corporate earnings season continues with the likes of Tesla, Netflix and Goldman Sachs all on deck. Investors will be closely watching to see whether the trend of over-delivering continues as the earnings season rolls on. But so far, the absence of bad news on the corporate front has been a green light for the buying of risk assets to continue.  

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