Finanical Insights M

Daily Financial Insights: Why we think US equities could be at risk of pulling back

Jessica Amir
Market Strategist

Summary:  US equities could be at risk of pulling back, with warning signs flashing in bond markets. The Fed collects more ammunition to keep hiking but markets still expect rate cuts. We cover potential portfolio positioning. And why the Aussie dollar and Pound Sterling move in different directions.

US equities move up despite hotter-than-expected retail sales and CPI. Why we see risk of a potential pullback

Investors digested stronger than expected retail sales for January, rising 3% which is the biggest jump in about two years, with car purchases soaring, with overall sales beating expectations (of 2% rise). Core sales also beat expectations (up 2.6% vs 0.9% expected). The bottom line is that this is the second set of data out this week, that puts the Fed in a tricky situation, with stronger growth and stronger inflation. This underpins arguments that the Fed can keep rates higher for longer, even though the market thinks the Fed will cut rates later this year. Bond markets are waking up that, that markets could be in for a shock. So, yields are moving higher, with the US 10-year yield back at 3.803%, its highest level since early January - flagging the possibility of equity markets pulling back. 

On top of that, we are seeing S&P500 earnings squeezed - 75% of S&P500 companies who reported results so far, reported aggregate average earnings falls of 2.2% in the quarter (but that’s slightly better than expected). Although the S&P500(US500.I) moved up 0.3% and the Nasdaq 100 (USNAS100.I) gained 0.8% on Wednesday, we don’t want to get too complacent here. Traders may want to consider putting in portfolio protection or taking some profits off the table and topping up defensive positions such as bond exposure in case markets pull back. Naturally, the 4,100 level is a key level to watch on the downside for the S&P500. What else to consider: later this week, traders will listen to speeches from Fed officials, which could be a catalyst for equities.

Australia equities (ASXSP200.I) moved lower to one-month lows, weighted by CBA. Gold miners and coal companies' results ahead

Yesterday Commonwealth Bank, Australia’s largest lender, issued a cautious outlook as its customers are feeling ‘significant strain’. Its shares sank about 6%, falling from their record highs to $103, while also dragging down the broader Australian share market (ASXSP200.I). Australia’s biggest bank and lender reported disappointing profit results and guided for a challenging year ahead - putting aside more capital for bad debts, as higher price pressures continue to hurt consumers, along with falling home prices. Its net interest margin came in at 2.1%, which was on par with expectations, but its cash profit missed expectations, despite rising 8.6% YoY to $5.15 billion (vs $5.17 billion Bloomberg consensus). The big Bank announced a $1 billion share buy-back and consensus expects 2023 profits to hit another record, and for margins to improve – that’s good to know for long term investors. However, for potential traders, it’s worthwhile noting, yesterday CBA shares gapped down, meaning the market may fill that gap and buy the dip today or in coming days.

Today we will be watching NAB’s quarterly results as well as results from miners, coal giant Whitehaven Coal, and gold companies, Newcrest Mining and Evolution Mining with the market expecting strong results 

In FX: the Aussie dollar is wobbly ahead of AU employmentdata. Watching AUDUSD and AUDGBP

The Aussie dollar stumbled after Australia’s biggest bank flagged a weaker outlook ahead with consumers feeling strain. Still the AUDUSD pair – seems to be supported by the 50-day moving average, but if today’s employment report is stronger than expected, i.e., more than 20,000 jobs are added, then we will be watching resistance levels, at perhaps 0.7114 for the Aussie. On the downside, if Australian employment is weaker than expected, look for potential support at perhaps at 0.6879. Also consider watching copper and iron ore prices which could guide the AUDUSD. Also consider watching the AUDGBP after the UK received slightly softer than expected UK CPI, which allows the bank of England to sit on their hands for a little longer, while the RBA can keep hiking.

 

Click here to look at more stocks to watch across the metals sector this week.
For our team's weekly look at markets, click here. 
To listen to our global team's take on markets - tune into our Podcast.

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.