SP500 Index Fund, Netflix, GDP, Interest Rates, USD/JPY and USD/CNY
- Trend view: THE SP500 index is below 4,375, bearish; EUR/JPY below 134, bearish; GBP/CAD above 1.6500, bullish
- The International Monetary Fund (IMF) lowered its global economic growth forecasts, mainly due to The impact of Russia and the euro.
- The earnings announcements of large listed companies will continue to affect the market, but the dominant factor in the market is still the Fed's monetary policy.
The comfort zone created by the central bank's loose monetary policy
Dark clouds are thickening over the global economic and financial system, but markets still seem to be stuck in the comfort zone created by the loose monetary policies of central banks over the past few years, and the cost of ignoring potential risks is becoming increasingly high. As a result, the factors driving the SP500's rally yesterday are less defensible, though this may be another buy-and-sell reaction to the International Monetary Organization's (IMF) downward revision of global economic outlook expectations. The SP500 index is currently in the middle of the January 2022 high and February low (4,467), and the index is likely to choose either direction in the future, further higher is undoubtedly a tough struggle for the bulls, and returning to the lows requires a strong downward breakout. Of course, we need to see the drivers behind the choice of direction.
SP500 Index Fund Daily Chart
The influence of many long-term factors on the market is gradually surpassing the impact of some short-term factors on the market. In the case of rising inflation and higher interest rates, the economy driven by leverage is facing upward pressure on the cost of funds, and for many years, low-cost financing has been an important factor affecting corporate performance, and investor confidence based on low-cost financing, the driving force behind the growth of US stocks, is being shaken. That's why I pay close attention to the SP500 index and the performance of Netflix's stock price after its earnings report. While Netflix's earnings report showed earnings per share of $3.53, higher than expected at $2.90, the first user churn since 2011, losing about 200,000 subscribers, caused its stock price to plunge 26 percent. Although Netflix is the least influential of the FAANG members, it still has some representative significance.
Netflix share price daily chart
What is driving the market?
Affected by the war in Russia and Ukraine, the International Monetary Fund (IMF) has significantly lowered the economic growth forecasts of the world and major economies: downgrading the global economy in 2022 by 0.8 percentage points to 3.6%, the euro area economy by 1.1 percentage points to 2.8% in 2022, the British economy by 1.0 percentage points to 3.7%, the Japanese economy by 0.9 percentage points to 2.4%, the Chinese economy by 0.4 percentage points to 4.4%, and the United States with the lowest margin. Down 0.3 percentage points to 3.7%. Differences in economic growth across economies will prompt their exchange rates and interest rates to continue to move in different directions. In addition, the World Economic Outlook (WEO) shows a sharp rise in inflation expectations, and the Global Financial Stability Report (GFSR) warns that we may not be able to explain some of the problems that will arise in the future. For now, though, the market doesn't seem to have reacted much to the update in the IMF's economic expectations.
IMF economic growth expectations
International Monetary Fund (IMF) World Economic Outlook 2022 (WEO)
In the event that the International Monetary Fund's (IMF) economic expectations update fails to cause market volatility, the Fed's monetary policy may bring some volatility to the market. The dollar continues to be supported by expectations of aggressive rate hikes from the Federal Reserve, and one of the central bank's most dovish members, Chicago Fed President Charles Evans, said the benchmark rate would rise to around 2.50 percent by the end of the year, meaning he could support a 50 basis point hike on the next two rate decisions. Bullard, who has long been known as a hawk, expects a benchmark interest rate of 3.50 percent and could accelerate his exit from the stimulus package. The market currently expects the federal benchmark rate to be around 2.65% by the end of 2022, which is basically close to the Fed's expectations.
Major economic events
Note the BoJ's intervention in the market
USD/JPY continued to soar, posting its biggest one-day gain since November 9, 2020 (1.2%), the highest level in 20 years. The continued weakness of the yen partly reflects the market's perception of the Central Bank of Japan, which has repeatedly said it is paying attention to the yen but has not officially announced intervention. More likely, though, they plan to intervene, or are already doing so, but do not acknowledge their specific actions in the market. If the G7 is seen as a currency manipulation, which could have potential consequences, the loss of credibility would be a difficult thing to recover, and the SNB is a lesson in this regard. Investors can pay close attention to the trend selection of usd/jpy in the future.
USD/JPY daily chart
The Bank of Japan may be infinitely close to intervention, while China seems to have loosened its guiding role in its own currency. In the case of Shanghai, China, pressing the pause button to contain the outbreak of the new crown epidemic, the Chinese Bank announced a cut in the reserve requirement ratio, and the International Monetary Fund lowered China's economic growth forecast, the US dollar/yuan broke through the 6.40 mark, which is also a resistance range for the overlapping of the 200-day moving average, the head and shoulders bottom pattern and the multi-year trend line. The breakthrough of this resistance has certain technical significance.
USD/CNY daily chart