Market Drivers – US Session – Friday, July 29

Mohamed Abdelhamid 30 July, 2022 5:24 am Cryptocurrency, Forex Market, Global Stock Market, Market Update

The British pound finished the week recording its second consecutive week in the green territory; it printed solid gains of 1.49%, amidst an upbeat market mood, portrayed by US equities closing higher on Friday. The GBP/USD pair was trading at 1.2170, 0.05% down, during the North American session.

US shares finished the week with positive performance, as Amazon and Apple soared. Earnings from both companies exceeded analysts’ estimates after the US Federal Reserve hiked rates 75 bps in the week, triggering Wall Street’s rally that carried on until the end of the week and the current month.

The S&P 500 closed the week gaining 1.42%, at 4,130.28, while the tech-heavy Nasdaq rose 1.88%, up to 12,390.69. Additionally, the Dow Jones Industrial followed suit and climbed 0.97%, finishing at 32,845.13.

Economic Data
The University of Michigan reported the Consumer Sentiment on its final reading for July, which rose 51.5, above estimations. In the same survey, American inflation expectations for a horizon of 5 years uptick from 2.8% (preliminary) to 2.9%, though less than June’s readings.

The NZD/USD pair came under pressure after the US Commerce Department revealed that the Personal Consumption Expenditure (PCE), the Fed’s favorite gauge for inflation, increased by 1% MoM and rose 6.8% YoY vs. expectations of a 6.7% rise. The so-called core PCE, which extracts volatile items, increased from 4.7% foreseen to 4.8% YoY. The major reacted downwards, tumbling 100 pips to its daily low at 0.6218, but found bids and trimmed some of those losses.

Other Developments
During the New York session, Atlanta’s Fed President Raphael Bostic said that the Fed is “going to have to do more in terms of interest-rate moves.” Bostic said he does not think the country is in a recession after Thursday’s weaker than estimated Advanced GDP for the second quarter at -0.9%. In the meantime, Christopher Waller said that “a soft landing is a plausible outcome for the labor market going forward,”

US bond yields have fallen significantly since Wednesday, after the US Federal Reserve hiked rates by 75 bps. The US 10-year Treasury yield fell from weekly highs around 2.845% to 2.636%, down 20 bps, a tailwind for precious metal prices.

It seems that stock market investors and cryptocurrency speculators needed a recession in the US to start buying stocks or crypto assets. US stock indexes and bitcoin can count this month as quite successful.

Friday’s data from the United States seems to show that the US economy has slipped into recession. This is commonly defined as two consecutive quarters of GDP decline, which is what happened in the US.

However, the White House or the Federal Reserve are still making it clear that there is no question of a recession and are, in a way, conjuring reality.

It’s all about the details and the way US GDP is counted. In the first quarter, the main contribution to the decline in GDP was a bump in net exports. This time, the main contribution to the second quarter GDP decline seems to have been stocks and their decline.

This was enough for the market to start playing more and more boldly for the end of the interest rate hike cycle by the Fed near the 3.25% level at the end of the year. Previously, investors estimated the possibility of ending the cycle at 3.50-3.75%. What’s more, the market is starting to estimate the possibility of the Fed cutting interest rates by 0.5 percentage points by March 2023. It seems that this may be the reason for the improved sentiment in the financial markets.

Bitcoin has risen in the neighbourhood of $24,000, which could represent a rally of about 30% in July. This, in turn, could mean that BTC is possibly facing its best month since October 2021. Other cryptocurrencies, including Ethereum, also saw a surge in value. The second largest cryptocurrency by market capitalization rose more than 70% in July, making it one of the best months ever for ETH.

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