3 Things You Need to Know About the Market Today: Bullish Grind, Shutdown Hopes, Intel Miss
1, Stocks Ignore Deepening Slowdown as Bulls Still In Control
EuroStoxx50 Index CFD, 4-Hour Chart Analysis
Despite the mostly negative news flow and the dismal European Services and Manufacturing PMIs, the counter-trend risk rally continued this week, even as the US indices failed make hit new correction highs (that might change today). With the key US releases, such as durable goods orders and new home sales being delayed due to the government shutdown, and with the earnings calendar being relatively light, technical factors will likely drive trading today.
In Europe, the optimism regarding the delay of the Brexit deadline helped equities and the Great British Pound alike this week, and today, the key benchmarks like the EuroStoxx 50, hit new swing highs, keeping the weak short-term uptrend intact.
That said, the broader downtrend is clearly dominant, and we would be sellers of risk assets at these levels even as from a short-term perspective, bulls are still in control. With all eyes on next week’s Fed meeting, a relatively quiet Friday session could be ahead on Wall Street.
2, Will the Longest Government Shutdown in History Finally End?
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The sometimes childish debate between Donald Trump and the Democratic leadership is still ongoing, with the issue of the infamous border Wall causing the stalemate between the two sides. While the shutdown’s economic impact has likely been negligible and transitory, some of the government employees are really starting to feel the pain.
Today’s news regarding a new round of negotiations between the two parties could signal that a deal is close, and the President might solve the problem by bypassing Congress, declaring a national emergency to acquire funding. An even longer shutdown could soon start eroding confidence and add to the already strong global headwinds which caused the bearish shift in risk assets. Also, it seems that Trump’s first term will pass without a non-campaign period, since the parties are already gearing up for 2020.
Given the legislative gridlock, it’s likely that as soon as the effects of the tax cuts wane the administration will have a hard time in further extending the already mature business cycle with more stimulus, and together with the slowdown in Europe and China, recession-risks could surge in the US. That could finally cause a deeper correction in the Dollar, and a sharp pullback in Treasury yields in the second half of the year.
3, Intel Misses Out on Guidance as Semiconductors Still Under pressure
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The pattern of decent numbers from the previous quarter accompanied by a poor forward guidance, which has been dominating the earnings season, continued with Intel (INTC) yesterday after the Wall Street close. Semiconductors have been among the weakest segments, due to the slowing PC sales, the maturing smartphone market, and the Chinese slowdown, and the average company in the segment is still down by 25% in 3 month, despite the recent rally in stocks.
Intel has been somewhat better off than the average thanks to its relatively stable business, and form a technical perspective, a rally above the key $50 price level would complete a bottoming process, which could set up a move towards the all-time highs. Following the quarterly report, with EPS of $1.28 vs. the expected $1.22 but a revenue forecast of $16 billion vs. $17.4 billion, the shares of the company are set to open 6% lower compared to yesterday’s closing price.
That would take Intel back to the midpoint of its trading range, but a quick recovery above $50 would be a positive sign for the sector, and today’s price action will be an important tell regarding the health of the broader market as well.
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