Adverse monetary policy
The US Fed pointed to a slower path of rate hikes last week as it increased rates by another whopping 75 basis pointsto 3.75-4.00%, which is the highest since early 2008. However, Chairman Powell defended aggressive moves and ruled out any pausewhile shifting focus from pace to how much rates will rise.
Furthermore, he pointed out that “Ultimately we can move to higher levels than we thought at the time of the September meeting”, embracing a higher market expectation for the terminal fee. At the time, Fed officials had projected the median rate to peak at 4.6% in 2023, while CME’s FedWatch tool shows expectations of at least 5.25% at the time of writing. .
Policymakers have carried out a massive tightening cycle since the March liftoff, which has been detrimental to Wall Street and to the NAS100 especially given that the technology sector and growth stocks are more vulnerable to the current environment of high rates and inflation.
China Risk Factors
The tech-heavy index managed to rally last Friday and extends its gains this week, despite China risk factors. Exports from the world’s second-largest economy fell 0.3% in USD terms in October, the first year-on-year drop since May 2020 and the height of the pandemic.
Covid-19 cases have been on the rise recently, and coupled with China’s strict zero-covid policy, economic activity is taking a hit. Ahead of the all-important holiday season, the tech giant Apple issued a warning for lower shipments and longer lead times for its iPhone 14 Pro and iPhone 14 Pro Max as production at its Zhengzhou factory is affected by Covid restrictions.
In recent days there has been some investor optimism that China will loosen its lockdown policies, but authorities are committed to the strict containment strategy according to Xinhua, citing officials from the national administration for disease prevention and control.
US CPI and intermediate terms
Markets will focus this week on US October inflation figures, due on thursday, in the form of the Consumer Price Index. Despite the Fed’s tightening efforts, inflation remains stubbornly high. The headline CPI had edged down to 8.2% y/y in September, but the core CPI had risen 6.6% and was the highest since 1982.
Meanwhile, the US midterm elections are taking place today, and the Democrats face an uphill battle. They currently hold both houses, but they seem poised to lose control of the House and potentially cede the Senate as well. According to the latest FiveThirtyEight poll, Republicans are “favored” take control of the House and “slightly favored” to win the Senate.
It’s hard to make an assessment of the outcome’s impact on the stock market (if any), but a Democratic surprise could weigh on tech sectors, as Democrats in Congress have been trying to rein in big tech like Alphabet. , Facebook and others.
The index remains bullish today after its strong performance over the previous two days as markets shrugged off recent risk factors, but the uptrend looks inhospitable. It has the ability to push back to the EMA200 and the downtrend line from the summer highs (11,320-11,400). However, sustained recovery beyond the critical 11,580-11,693 will require a strong catalyst. This is the lower bound of the daily Ichimoku Cloud and the Fibonacci 38.2% of the 2021 High/2022 Low decline.
The current fundamental and technical environment remains unfavorable for NAS100, which remains deep in bear territory. By mid-October it had fallen to the lowest levels since July 2022 (10,437), with the consequent rally contained by the aforementioned 38.2% Fibonacci. This creates a higher risk of new lows that would bring 10,089-10,000 into the spotlight.