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Forex Market Analysis: Fed’s Policy & Big Tech 30 Jan 2024

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Forex Daily Analysis: 30 Jan 2024

CURRENCIES:

• Event Overview: Fed’s First Monetary Policy Decision of 2024
  • Announcement Date: Wednesday, Jan 31, 2024
• Potential Market Impact
  • Increased Volatility Expected for Gold Prices, U.S. Dollar, and Stocks
  • Traders Advised to Prepare for Heightened Volatility and Unpredictable Price Movements
• FOMC Expectations
  • FOMC Anticipated to Maintain Key Interest Rate in 5.25% to 5.50% Range
  • Possibility of Dropping Language Indicating Likelihood of Additional Policy Firming
  • Potential Shift Toward a More Dovish Stance
• Policy Considerations
  • Strong U.S. Economy Supports a Tightening Bias
  • Dovish Posture Might Emerge to Address Labor Market Concerns
  • Early Action Seen as Risk Mitigation to Avoid Extreme Accommodative Measures Later
• Potential Outcomes and Market Responses
  • Possibility of First-Rate Cut Teased for March Meeting
    • Result: Broad-Based Drop in U.S. Treasury Yields, Bullish for Stocks and Gold, Bearish for U.S. Dollar
  • Hawkish FOMC Stance, Pushing Back Against Rate Cut Expectations
    • Result: Sharp Rise in Nominal Yields and U.S. Dollar, Hostile for Equity Market and Precious Metals in Near Term
• Market Insights and Preparations
  • Expect Attractive Trading Opportunities, But Caution Advised Due to Potential Volatility
  • Monitoring FOMC’s Language Changes Crucial for Anticipating Market Reactions
  • Traders Encouraged to Stay Informed and Navigate Complex Market Conditions

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STOCK MARKET:

• Big Tech Dominance
  • Recent data from FactSet emphasizes continued significance of Big Tech in market dynamics.
  • Market strategists anticipate Big Tech to drive Q4 earnings growth for the S&P 500, countering calls for market rally broadening.
• Earnings Expectations
  • Apple, Alphabet, Microsoft, Amazon, Meta, and Nvidia projected to contribute a combined 53.7% earnings growth in Q4.
  • In contrast, expectations for the remaining 494 S&P 500 companies suggest a 10.5% decline.
  • Companies such as Apple, Alphabet, Microsoft, Amazon, and Meta scheduled to report Q4 results this week.
• Overall Market Direction
  • Following Tesla’s Q4 disappointment, Evercore ISI’s Julian Emanuel deems stock price reactions to Big Tech earnings as “critical for overall market direction.”
• Massive Expectations for Some
  • Notable earnings projections include Nvidia’s expected 400% YoY growth and Meta’s anticipated 175% YoY growth in EPS.
• Continued Growth Anticipation
  • FactSet’s second chart predicts nearly 80% earnings growth in Q1 2024 for Amazon, Alphabet, Meta, and Nvidia.
  • The remaining 496 companies, including Apple, Microsoft, and Tesla, forecasted to grow earnings by a combined 0.3%.
• Market Valuation
  • Massive earnings expectations contribute to the S&P 500’s all-time highs, potentially justifying its valuation.
  • Increased technology weight in the index is seen as a factor supporting overall growth.
• Tech’s Role in Recent Market Rally
  • Analysis by Yahoo Finance’s Jared Blikre indicates that, excluding Tesla, tech companies drove nearly 90% of the market’s growth during the January rally.
• Beyond Quarterly Numbers: Key Market Narratives
  • Tech earnings updates extend beyond financial figures.
  • Focus on narratives during earnings calls, including:
    • Artificial intelligence advancements at Meta and Nvidia.
    • Scrutiny on Microsoft and Amazon’s cloud revenues.
    • Apple’s products business reflecting hardware demand and consumer spending.
• Market Significance of Tech Earnings
  • Tech earnings viewed as crucial indicators not only for performance expectations but also potential warnings of economic slowdowns if results fall short of estimates.

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