US Stock Futures Hold Steady as Investors Await Key Data, Mega-Cap Stocks Falter, and Dollar Weakens | Daily Market Analysis

Key events:

• UK - Employment Change 3M/3M (MoM) (May)
• UK - Unemployment Rate (May)
• Eurozone - ZEW Economic Sentiment (Jul)
• USA - FOMC Member Bullard Speaks
• USA - EIA Short-Term Energy Outlook       

During Monday evening's trading, US stock futures remained within a narrow range. This followed three consecutive sessions of declines in major benchmark averages. Investors were awaiting the release of important inflation data and earnings results later in the week.

Mega-cap stocks failed to provide substantial support during the session. Tesla experienced a decline of up to 2% in its stock value, while Amazon concluded the session with a decrease of over 2% just before its Prime Day event. Prime Day has now transformed into a widely recognized shopping day across the industry, providing insights into the willingness of US consumers to increase their online spending.

On the contrary, Meta (formerly known as Facebook) saw a rise of 1.23% in its stock price. This increase can be attributed to the success of its newly launched platform, Threads, which has already accumulated 100 million users since its recent release. Additionally, internet traffic data from Cloudflare indicated a significant decrease in Twitter usage, suggesting a decline in its popularity.

Yesterday, there was a significant influx of capital into treasuries, leading to a decline of approximately 10 basis points in the US 2-year yield. Surprisingly, despite expectations of a hawkish stance from the Federal Reserve, the US dollar experienced a sharp drop below a long-term ascending channel base. As a result, those bearish on the dollar are now setting their sights on the 100 level as the next target.

The dollar-yen pair also plummeted below the 141 level and is poised to test the 50-day moving average (DMA) support around the 140 level. Conversely, the EUR/USD pair rallied above the 1.10 mark, disregarding a sentiment index indicating a faster deterioration in the Eurozone for July. The upcoming release of the German Consumer Price Index (CPI) is likely to confirm a recent rebound in inflation, driven by the positive base effect from low-priced train tickets distributed by the government last year. Additionally, the ZEW index is expected to indicate a worsening mood. While higher German inflation is favorable for the euro, it remains uncertain how much importance Christine Lagarde and her colleagues at the European Central Bank (ECB) place on sentiment indicators.

The weakening US dollar, despite expectations of a hawkish Fed, along with anticipated hawkishness from the ECB, could contribute to a further increase in the EUR/USD pair towards the 1.12 mark.

On Tuesday, European stock markets are anticipated to open with gains, following the positive performance of Wall Street and Asian markets overnight. Investors will be analyzing key data on German inflation and UK unemployment. The upbeat sentiment in Europe was influenced by Wall Street's strong finish, with the Dow Jones Industrial Average climbing more than 200 points or 0.6%. This was driven by indications that the Federal Reserve was nearing the end of its rate hike cycle for the year.

Early trading in Asia on Tuesday showed mostly higher stock prices, and Europe is expected to follow the same trend. This follows comments from several Fed officials on Monday, suggesting that interest rates will need to rise further to tackle inflation, but that the tightening cycle is approaching its conclusion.

Concerns have persisted throughout the year that the US Federal Reserve's aggressive tightening measures to control inflation could lead to a recession in the world's largest economy, which is a major driver of global growth. These concerns have exerted pressure on global markets.

Apart from that, the British pound displayed a slightly weaker performance following the release of a private sector survey indicating a slowdown in wage growth and hiring pace in June. While there has been limited evidence of this trend in recent data, the upcoming release of the Office for National Statistics (ONS) figures today may provide more clarity, albeit with a lag.
 

Approximately a month ago, the April wage numbers in the UK underscored the challenges faced by the Bank of England. Wage growth surged to 7.2%, reaching a record high outside of the pandemic. This prompted an increase in UK 2-year gilt yields, surpassing the October peaks from last year following the ill-fated Kwarteng budget.

The significant surge in wages over the past few months has highlighted the Bank of England's failure to take timely action. Workers, who are already feeling financial pressure from various sources, are advocating for larger pay raises to bridge the gap in real wages. Today's release of May wages data is unlikely to indicate a weakening in these upward pressures, with expectations suggesting a 7.1% growth rate for the three months ending in May.