Equities report: US inflation remains stubborn

US stock markets seem to present lower volatility than usual, showing some temporary stabilisation. We recognise that there are a number of fundamental factors that could affect US stockmarkets while there are some interesting news of specific companies such as Apple and BP. Furthermore we would like to remind our readers that ARM’s IPO mentioned in last week’s report is for tomorrow and is reported to be overbooked, which could push the share’s price to the higher end. In this report, we are to discuss the fundamental environment surrounding US stockmarkets, discuss the launch of Apple’s new iPhone and the resignation of BP’s CEO Looney and end the report with a technical analysis of a US stock market index for a more rounded view.

Fundamentals and risk events

Despite the relative inactivity in US stockmarkets, uncertainty may be simmering under the surface. There have been a number of analysts citing that the Fed may be done with its rate hikes, yet we still are quite uncertain. Inflationary pressures in the US economy seem to remain present after the release of the US CPI rates for August and in turn may sharpen the Fed’s hawkish stance. It should be noted that the US employment market despite taking a hit, it still tends to remain at better levels than the prepandemic level and average earnings growth rate despite ticking down tends to imply that it will continue feeding inflationary pressures in the US economy. Furthermore, the GDP rates are quite well in the positives despite the continuous contraction of economic activity for the US manufacturing sector. All of that tends to imply that the path for the Fed to continue hiking is still open. Even should the bank opt not to hike and has reached its terminal rate, it may still maintain high rates for a prolonged period in order to curb inflationary pressures and lower the CPI rate to its 2% yoy target. Such a stance may weigh on US stock markets as the restrictive financial environment may well be reflected in future earnings but also as it may cause the market sentiment to be more cautious.

Apple’s new iPhone

In the US Equities market, Apple (#AAPL) revealed its iPhone 15 product yesterday. The new iPhone boasts Apple’s new A17 chip or A16 chip (depending on which version you buy), in addition to improvements in the camera, the use of titanium alloys and most importantly, the new phones are EU compliant with their type-C port, bringing an end to Apple’s lighting cables. Interestingly, the new iPhone will cost $799 for the base model, striking down expectations of Apple (#AAPL) increasing the price for their new phones. Despite new features and improvements, market participants may have been more interested in the product’s price, as it remained relatively the same which appears to have weighed on the stock’s price, as investors potentially fear that the current prices may not generate the revenue they were hoping for and as such could weigh on the company’s earnings in the future. However, we believe that in the long term, the decision to not increase prices on the company’s new iPhone, may prove beneficial, as it could lead to an increase in sales by inducing existing and new customers to purchase the newer iPhone and thus could offset the decision to keep prices relatively the same. In conclusion, despite the stock price moving initially lower, the potential benefits of increased sales, could overall boost the company’s stock price in the long run.

The implications of BP’s CEO Looney resignation

The sudden resignation of BP’s CEO Bernard Looney took the markets by surprise. In an announcement BP stated that Mr. Looney’s resignation was due to the fact that he failed to fully disclose to the company’s board of directors his past relationships with colleagues. The issue though is much wider than a simple resignation. Mr. Looney was maybe the key factor behind the company’s turn towards renewable energy with substantial investments in the sector. It was characteristic that the company in the past three years had
implemented maybe the most radical strategy shift towards greener territory, including hydrogen and offshore wind. His resignation allows for a void to be created in regards to the company’s strategic shift and the company’s green direction seems to be placed under doubt. Some analysts welcome the possibility of the company partially shifting back to fossil fuels as they may provide a more sound business model, with increased profitability. On the other hand the uncertainty created is an element that may weigh on the share’s price, at least in the beginning until the dust settles down.

Analyser la technique

US30 Cash, H4 Chart

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

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

Dow Jones edged lower over the past few days, yet the overall picture of a sideways motion between the 35000 (R1) resistance line and the 34300 (S1) support level, seems to be maintained. For the time being we tend to maintain our bias for the sideways motion to be continued given the low volatility present. Furthermore we note that the RSI indicator continues to run along the reading of 50, implying a rather indecisive market, while the 50 moving average (green line) and the 100 moving average (orange line) have flattened out, maintaining a steady distance between them, reflecting the stabilisation of the index in the recent past. Should the bears clearly take over, we may see the index breaking the 34300 (S1) support line that served Dow Jones well in the midst of August and despite being shallowly broken in its last days. Next possible targets for the bears could be set at the 33600 (S2) support level. On the other hand, should the bulls be in charge of the index’s direction we may see Dow Jones, breaking the 35000 (R1) resistance line which limited the index ascent on the last day of August and aim for the 35700 (R2) resistance line which capped the index’s upward movement on the 1st of August.

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