Equities report: Equities continue on their ascent

US stock markets seem to be on track to end the week in the green, thus continuing their three week winning streak. In today’s report, we would like to address what fundamentally seems to be driving them, and then narrow our focus on  Amazon’s recent developments in addition to the implications of the US tariffs on Chinese imports. We conclude our report with a technical analysis of Nasdaq’s daily chart.  

US CPI rates due out on today

The US CPI rates for April are set to be released later on today. At this point in time, the expectations are for the Core CPI rate on a year-on-year level to decelerate to 3.6% from 3.8%. Furthermore, the headline CPI rate is also expected to decelerate on a year-on-year level to 3.4% from 3.5%. Thus, should the US CPI rates come in as expected, hence implying easing inflationary pressures, it could increase pressure on Fed policymakers to reduce the tight financial conditions surrounding the US economy. Thus, the implications of the Fed easing its monetary policy could provide support for US equities across the board. On the flip side, should they come in higher than expected and hence imply, persistent or even an acceleration of inflationary pressures, we may see the opposite occurring.

Amazon (#AMZN) expands its AWS Cloud infrastructure in Europe

Following last week’s agreement in which Amazon (#AMZN) reached a deal with Telefonica Germany to move one million of their 5G customers to it’s AWS cloud, Amazon has announced another expansion project in Europe. The company announced on Wednesday that it plans to invest roughly 7.8 billion euros in order to build cloud computing infrastructure in Europe and in particular Germany. The move could be seen, as a precursor to future deals, as the deal with Telefonica last week could only be the beginning. Furthermore, the increase in infrastructure to service its European customers could be in order to facilitate future integrations into Amazon’s AWS Cloud services, which could yield higher revenue in the future should it attract more customers. In conclusion, the implications of an increase in future revenue for Amazon (#AMZN), could provide support for the company’s stock price.

US Government hikes US tariffs on a wide range of Chinese imports

On Tuesday the 14^th of May, the US Government announced that it would be expanding its existing tarrifs against a wide range of Chinese imports. In particular, the US Government quadrupled EV duties to over 100%, which would make the import of Chinese EV vehicles significantly more expensive for US consumers. On the other side, domestic EV manufacturers such as Tesla (#TSLA) could potentially benefit, as they may face reduced competition from Chinese EV makers whose vehicles may have been a cheaper alternative. Furthermore, the announcement also included a doubling on Chinese semiconductor duties to 50%, which could benefit Intel (#INTC) which produces and manufactures its own semiconductors in the USA. Overall, the two aforementioned companies’ stock prices could benefit, as they may face reduced competition from China and thus may retain or even increase their respective market share of the US EV and Semiconductor markets respectively.  However, as was reported by Reuters, the US Imports a relatively small number of Chinese Vehicles. In addition, the updated tariffs also include an increase in Lithium-ion electric vehicle batteries and critical minerals to 25%, which could increase the costs of production for Tesla’s EV Vehicles whose Lithium battery supply originates from China. In conclusion, it is our view that we may see a temporary boost to US-based EV makers such as Tesla (#TSLA), yet in the long run it could actually impact the company negatively should it fail to secure a significant Lithium provider outside of China. Whereas, Intel’s (#INTC) more diversified network of procuring raw resources could benefit them in the long run. In conclusion, we would personally adopt a wait-and-see strategy for Tesla, as the true impact has yet to be seen and any upside potential could be temporary.

التحليل الفني

#US100 Cash Daily Chart

• Support: 17800 (S1), 17000 (S2), 16300 (S3)
• Resistance: 18500 (R1), 19100 (R2), 19700 (R3)

Nasdaq since our last report has managed to continue on its upwards ascent, with the index now appearing to be taking aim for the all-time high figure at the 18500 (R1) resistance line. We tend to maintain our bullish bias for the index and supporting our case is the upwards moving trendline which was incepted on the 19^th of April. In addition the formation of a morning star pattern on the 1^st of May serves also as a legitimate bullish indication for the index’s direction. Yet we would like to note that the bulls may face heavy resistance as the index nears it’s all-time high figure. Nonetheless, for our bullish outlook to continue, we would like to see a clear break above the 18500 (R1) resistance line with the next possible target for the bulls being the 19100 (R2) resistance level. On the flip side for a sideways bias we would like to see the index remain confined between the 17800 (S1) support line and the 18500 (R1) resistance level. Lastly, for a bearish outlook we would require a clear break below the 17800 (S1) support level, with the next potential target for the bears being the 17000 (S2) support base.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

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