Equities report: Fed’s interest rate decision in focus

US stock markets continue to present lower volatility than usual, showing some temporary stabilisation, yet the overall picture tends to simulate the calm before the storm. We recognise that there are a number of fundamental factors that could affect US stock markets and we are to discuss the fundamental environment surrounding US stock markets, as well as the improved preorders of Apple’s new iPhone and end the report with a technical analysis of a US stock market index for a more rounded view.

The Fed’s interest rate decision

We highlight for US equities markets the Fed’s interest rate decision later today. The bank is widely expected to remain on hold and currently, Fed Fund Futures imply that the market has almost fully priced in such a scenario to materialize, while also implying that the market expects the bank to start cutting rates in the summer of next year. Should the bank actually remain on hold and signal that it has reached its terminal rate, we may see the market sentiment turning more risk on and such a scenario may provide support for riskier assets, such as equities as it would imply that further tightening of the already restrictive financial conditions in the US economy is about to stop. On the other hand, we note that the inflationary pressures remain persistent in the US economy and should the bank take the markets by surprise and hike rates, or even remain on hold and maintain a hawkish stance, possibly signaling that this is not the end of its rate hiking cycle, we may see the market sentiment turning more cautious and thus weighing on US equities. A third scenario would be for the bank to hike rates yet signaling that it’s the last hike, more or less as the ECB did last week. In such a case, again we expect an improvement of the market sentiment that may support US equities.

The surrounding environment and the upcoming tests

Yet we tend to view the situation as a bit more long-ranging in the sense that even should the Fed actually remain on hold and signal that it has reached the end of its current rate hiking cycle, it may keep rates at high levels for a prolonged period, given that inflationary pressures in the US economy tend to remain high. Such a scenario would imply a substantial curbing of economic activity in the US economy as the rates are to remain in restrictive territory for the US economy and the cumulative effect of the Fed’s rate hikes would weigh. We were particularly worried as August’s number of house starts yesterday dropped to levels not seen since 2020, implying a wider hesitation of consumers to build new houses, probably also due to the high-interest rates charged for mortgages. We intend to concentrate on economic activity data for the US economy in the coming week and we note as the next big test for US stock markets the release of the preliminary US S&P PMI figures for September on Friday, with the focus being on the manufacturing sector. We would also note on the production side of the US economy the Philly Fed business index for September due out tomorrow, while on the demand side of the US economy, we would note September’s consumer confidence due out next Tuesday.

Apple’s preorder book for iPhone 15 is filling up fast

We discussed the release of Apple’s iPhone 15 in the last report and the good news seem to be reeling in for the big high-tech company. The preorder book of Apple for the new iPhone seems to be filling in pretty fast, since last Friday when preorders started, disproving market worries for the possibility of slow sales. Pre-orders according to media seem to be up 10-12% if compared to the prior model, iPhone 14. The delivery of iPhone 15 is reported to be moving to late October-early November in a sign that demand outpaces production. The news boosted the share’s price since Monday allowing it on Tuesday to close at $178.88. Overall the boosted preorders are expected to be reflected also in a possibly improved revenue figure in Q4’s earnings report. Furthermore, we note that the operating system iOS17 is available since Monday, as
a free software update, which according to Apple “makes the iPhone even more personal and intuitive”. For the time being, the company seems be supported by the market and if that is to continue in the following days, we expect it to be reflected on the share’s price, possibly erasing the losses marked on the day of the release of iPhone 15.

تجزیه و تحلیل فنی

US30 Cash, Daily Chart

Support: 34300(S1), 33600 (S2), 32700 (S3)

Resistance: 35000 (R1), 35700 (R2), 36500 (R3)

Dow Jones in the big picture tended to remain confined in a sideways motion between the 34300 (S1) support line and the 35000 (R1) resistance level, despite an unconvincing drop on the 15th of the month. We tend to maintain our bias for the sideways motion to continue as long as the price action largely respects the prementioned levels. We note that the RSI indicator runs just below the reading of 50, currently implying a rather indecisive market, while the Bollinger Bands have narrowed implying lower volatility, with both indicators implying that a continuance of the sideways motion may be allowed. Nevertheless, we highlight that the Fed’s interest rate decision may alter the direction of the index. Should the bulls take over we may see the index breaking the 35000 (R1) resistance line, a level forming the upper boundary of the current sideways motion and aim for the 35700 (R2) resistance level, which reversed the index’s upward motion in the last days of July, while we note as the ultimate possible target for the bulls the 36500 (R3) resistance barrier that has not seen any price action since January last year. Should the bears be in charge, we may see the index breaking the 34300 (S1) support base that also is considered the lower boundary of the index’s current sideways motion and aim for the 33600 (S2) support level, that held its ground against downward pressure of the index on the 26th of June and 1st of July. As the final support line we note the 32700 (S3) support hurdle that served the index well as a support line in the last days of May.

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