Equities report: Equity traders await US CPI print

US stock markets appear to send mixed signals as to which direction they should go. It appears that the markets are anticipating the release of the US CPI print. In this report we aim to present the recent fundamental and economic news releases that impacted the US stock markets, look ahead at the upcoming events that could affect their performance and conclude with a technical analysis.

US stock markets highly anticipate CPI print

Equity markets traded slightly lower following last week’s JOLTS and ADP Non-Farm Payroll. As was mentioned in last week’s report, the substantial reduction in the JOLTS Job openings was a precursor to a much lower than expected ADP Non-Farm Payrolls figure which came in at 145k compared to the predicted figure of 200k. In addition, the ISM Non-Manufacturing PMI came in at 51.2 indicative of the US economy growing but at a slower pace, thus the data implied that the US may be reaching a period of economic downturn which in turn, weakened the resolve of the equities market. However, US Employment data released on Friday painted a different picture, with the US NFP figure coming in at 236k against the previous figure of 326k, combined with a reduction in the Unemployment rate for March from 3.6% to 3.5% , implied that the US labour market ,remains relatively tight. This may have provided some temporary support in the equities markets heading into this week’s crucial US CPI print, due to be released later on today. As these words are currently being written, market analysts are predicting US CPI to increase at a lower rate of 5.2% compared to the previous rate of 6.0%, potentially providing support to US Equities markets, as it may imply that the current interest rates are having a meaningful impact in the fight against inflation, hence providing an optimistic economic outlook. This may allow the central bank to ease in their hawkish rhetoric in the event that the anticipated CPI print registers a slowdown, given that a weaker dollar could facilitate inflows into the equities market, as it will be less expensive to invest hence strengthening the US Equities market.

A divided FED speaks volumes

Over the past week, equity traders have seen a large number of Fed officials speaking at public engagements, all with somewhat different opinions. Equity markets, were sending mixed signals last week, following contradictory statements made by Fed officials in the past week, as Cleveland Fed President Mester last Wednesday indicated that she has a more hawkish outlook on inflationary pressures than her peers and stated, “I see somewhat more persistent inflation pressures than the median forecast among participants”. Implying that the US inflation according to her will continue to persist, hence justifying the need for further rate hikes. Moreover St. Louis Fed President Bullard re-iterated hawkish comments made by Mester a day later, stating “We’ve got a long ways to go and I think inflation is going to be sticky going forward”, supporting the theory that the Fed may continue hiking interest rates. Validating the view for more tightening were results of the US employment data, which even though coming below slightly lower than expectations, have led to a stronger greenback at the expense of US equities markets. In comparison to this week, we so far have had three Fed FOMC voting members with public engagements, with Minneapolis Fed President Kashkari and Philadelphia Fed President Harker both re-iterating hawkish comments made by their colleagues last week, furtherer fuelling speculation of a rate hike in the next FOMC meeting on the 3rd of May. However, Chicago Fed President Goolsbee reminded equities traders that not all members are on the same page, stating “Given how uncertainty abounds about where these financial headwinds are going, I think we need to be cautious”. The slightly dovish remarks in contradiction to that of his aforementioned colleagues, could potentially indicate that the FOMC minutes that are due to be released today may provide key insight, as to how the FOMC members’ outlooks changed, following the mini-banking crisis. In addition, if the FOMC minutes paint a picture of division in the Fed, with sides being drawn it could transcribe into the equities market, leading to increased volatility.

Walmart closes four stores in Chicago

Walmart has announced the closure of four stores in Chicago on Wednesday. Following last week’s report in which we covered Walmart’s decision to reduce their workforce count, it now appears that further measures are being taken to strengthen their balance sheet. According to Walmart the Chicago stores have been losing “tens of millions of dollars a year, and their annual losses nearly doubled in just the last five years”. Indicating that recent market conditions have only worsened the situation, as it is only now that they have decided to shut them down, despite losing tens of millions of dollars a year. It appears that Walmart is taking care of their affairs, potentially hoping to build up reserves, as the possibility of a recession heats up. As the IMF world economic outlook shows worrying signs of a reduction in GDP growth in the US from 1.6% in 2023 to 1.1% in 2024, it would be reasonable that companies, such as Walmart may anticipate reduced consumer demand. Therefore, by reducing overhead costs through a reduction in their workforce and the closure of non-profitable stores, Walmart may be better prepared should they require capital to weather through a recession. This may provide support in the equities markets, if more companies follow suit with Walmart’s business practices, as this may increase the share price of these companies, due to healthier balance sheets.

기술적 분석

#WMT Daily Chart

Support: 147 (S1), 144 (S2), 139 (S3)

Resistance: 151 (R1), 155 (R2), 160 (R3)

Looking at #WMT Daily chart we observe investors having reacted favourably to last week’s employee reduction announcement, in addition to the closing of four Chicago stores. We hold a bullish outlook bias for Walmart, given the formation of an upwards trendline since the 15th of March. Supporting our case is the RSI indicator below our daily chart which currently stands at 70, indicating a strong bullish sentiment surrounding the retail behemoth. Furthermore, the RSI indicator staying at 70 may signal that the bulls are eager and are actively trying to push prices higher ground. Should the bulls extend their reign, we may see the break above the 151 (R1) resistance level and the move towards the 155 (R2) resistance barrier. For a bearish outlook we would like to see a clear break below the 147 (S1) support level with the next possible target for the bears being the 144 (S2) support base.

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