Equities report: Equities move higher

The bearish tendencies for US stock markets of the past week seem to have been halted, as all three major US stock market indexes have moved higher over the past week. Today we are to discuss the implications of the US CPI rates, the possibility of a breakup of Google, UBS’s earnings report and next week’s earnings releases whilst for a rounder view finish the report with a technical analysis of the S&P 500’s Weekly chart.

تمرکز روی نرخ شاخص قیمت مصرف‌کننده ایالات متحده

The release of the US headline CPI rates for July later on today, are expected to showcase persistent inflationary pressures when looking at the year-on-year rate which is anticipated to remain steady at 3.0%, whilst on a month-on-month basis, the CPI rate for July is expected to accelerate to 0.2% from 0.1%. However, on a core level, the year-on-year rate is expected to showcase easing inflationary pressures and thus may mitigate the negative implications on the US equities markets should CPI rates on a headline and core level come in as expected. Overall, should the headline CPI rates for July showcase persistent or even an acceleration of inflationary pressures on the US economy, the pressure on the Fed to cut interest rates in September may ease which in turn may ease the tight financial conditions surrounding the US economy. In turn, the possibility of the Fed cutting interest rates may aid the US equities markets. However, should the CPI rates showcase easing inflationary pressures in the US economy, it may have the opposite effect and thus could potentially increase pressure of the Fed to withhold from cutting interest rates, which may weigh on US equities.

Google breakup?

Google (#GOOG) last week was found guilty of having an illegal monopoly over online search and related advertising. In particular, US District Judge Mehta stated that “After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly”. In last week’s report we mentioned that the government had asked for a “structural relief” which in theory could mean a breakup of the company. As such, the report by Bloomberg that the DOJ is considering breaking up Google is not necessarily such a surprise to us, but still a significant development, as a breakup of Google would be historic in its own right. Therefore, should the DOJ proceed to move with splitting up Google, it may significantly impact the company’s stock price as the volatility and uncertainty surrounding the company may deter investors from staying or investing in the company. However, should the DOJ seek other remedies from the company which does not include a potential breakup, it may instead provide support or mitigate the impact of the other potential remedies on the company’s stock price.

UBS’s earnings

UBS’s earnings were released earlier on today. The company easily beat revenue and earnings per expectations, with the Swiss lender posting record revenues of $11.9 billion for the quarter and an EPS figure of $0.34. The earnings report comes after UBS formally completed its merger with Credit Suisse in May. Moreover, UBS CEO Sergio Ermotti according to the FT stated that “We are well positioned to meet our financial targets and return to the levels of profitability we delivered before being asked to step in and stabilise Credit Suisse” which tends to imply a positive outlook for UBS’s earnings in the future. Overall, the better-than- expected earnings report and optimistic comments by the company’s CEO may aid UBS’s stock price.

Incoming earnings reports

As for incoming earnings reports we note NIO (#NIO) , Baidu (#BIDU) and Opera (#OPRA) which are all set to release their earnings report next Thursday.

تجزیه و تحلیل فنی

US500 Cash Weekly Chart

• Support: 5300 (S1), 4970 (S2), 4600 (S3)
• Resistance: 5620 (R1), 5900 (R2), 6200 (R3)

The S&P’s downwards motion appears to have been halted, with the index currently on track to end in the greens for a second week in a row. We cautiously opt for a bullish outlook for the index and supporting our case is the RSI indicator below our char which currently registers a figure near 60, implying a bullish market sentiment, in addition to the upwards moving trendline which was incepted on the 14th of April. For our bullish outlook to continue we would require a clear break above the 5620 (R1) resistance line with the next possible target for the bulls being the 5900 (R2) resistance level. On the flip side, for a bearish outlook we would require a clear break below the 5300 (S1) support line with the next possible target for the bears being the 4970 (S2) support base. Lastly, for a sideways bias we would require the index to remain confined between the sideways moving channel defined by the 5300 (S1) support line and the 5620 (R1) resistance level.

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