Equities report: Fed decision to shake the markets

Since the start of the week US stock markets seem to have moved higher with the S&P500, NASDAQ 100 moving higher, yet the Dow Jones 30 appears to be relatively unchanged at the time of this report. In this report, we are to discuss the upcoming interest rate decision by the Federal Reserve later on today and the recent announcement from China to their companies to stop purchasing Nvidia’s chips. The report is to be concluded with a technical analysis of S&P’s 500 daily chart.

Fed’s interest rate decision today

The Fed’s interest decision is set to occur during today’s American trading session. The decision as well as Fed Chair Powell’s press conference following their meeting, are both set to capture the attention of the market participants across the world. The current expectations are for the Fed to cut rates by 25 basis points, a view to which we tend to agree with considering the state of the US labour market. Moreover, Fed Funds Futures currently implies a 97.3% probability for such a scenario to materialize and thus we would turn our attention to Fed Chair Powell’s press conference. In our view, we would like to see the Fed Chair implying that the bank may be shifting it’s main focus to the state of the US labour market which could imply that further rate cuts may occur this year in order to support the aforementioned labour market. In turn, this could provide support for the US Equities markets as the financial conditions surrounding the US economy may ease. However, an ultra-dovish Fed may be a double-edged sword as should the Fed appear worried about a recession, it could weigh on US stockmarkets. On the other hand, an insinuation that the Fed could remain on hold may weigh on the US Equities markets. Lastly, we must note that Govenor Cook will be voting member and will be attending the Fed’s monetary policy meeting following a decision by a US federal appeals court to block the firing of the Fed Governor, whilst US President Trump signed documents allowing Stephen Miran to join the U.S central bank’s Board of Governors who was then sworn into his position and will be voting in today’s interest rate decision.

China tells its companies to stop buying NVIDIA’s chips.

According to a report by the FT, China’s internet regulator has told the nation’s biggest technology firms to halt the purchasing of Nvidia’s artificial intelligence chips and to terminate their existing orders. The RTX Pro 600OD is affected, and the orders are in the tens of thousands. The announcement today could weigh on Nvidia’s (#NVDA) stock price due to the potential revenue lost as a result of the possible mass cancellation of orders for its chips from Chinese companies. However, the targeting of Nvidia by China appears to be an attempt by the Chinese Government to gain some negotiation leverage over the US in their trade talks. Nonetheless, should Nvidia face further “attacks” it may continue to weigh on the company’s stock price. We would like to note that in our view, Nvidia appears to be a bargaining chip for both the US and China as they continue in their trade spat and thus the company may be thrust further into the spotlight as both sides attempt to garner more leverage.

テクニカル分析

US500 Daily Chart

• Support: 6467 (S1), 6295 (S2), 6135 (S3)
• Resistance: 6635 (R1), 6805 (R2), 7020 (R3)

The bullish tendencies of the S&P 500 seem to have been confirmed over the past week, with the index forming a new all-time high figure at our 6635 (R1) resistance line. We opt for a bullish outlook for the index and supporting our case is the RSI indicator below our chart, which currently registers a figure near 70, implying a bullish market sentiment in addition to our MACD indicator. Moreover, further aiding our bullish outlook is the upward-moving trendline, which was incepted on the 23rd of May. However, we would not be surprised to see a retracement from the recently formed all-time high figure. For our bullish outlook to be maintained, we would require a break above our 6635 (R1) resistance line with the next possible target for the bulls being our hypothetical 6805 (R2) resistance level. On the other hand, for a sideways bias we would require the index to remain between our 6467 (S1) support level and our 6635 (R1) resistance line. Lastly, for a bearish outlook we would require a clear break below our 6467 (S1) support level with the next possible target for the bears being the 6295 (S2) support line.

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