Week Ahead: US30 index still sensitive to US recession fears

• Markets still obsessed with deciphering US recession risks
   
• Home Depot, Walmart earnings offer pulse on US economy
   
• Latest US inflation data also holds clues about Fed’s next moves
   
• Economically-sensitive US30 stock index ready to punch above 50-day SMA resistance

 

Markets are still obsessed about the risks of a US recession.

Traders and investors worldwide are still licking their wounds from the recent plunge across global financial markets, following last Friday's unexpected rise in the US unemployment rate (4.3% in July).

Against such a backdrop, next week’s US economic data and US earnings releases could shift market expectations surrounding a US recession, and whether the Fed will be forced to cut rates aggressively.

 

Tuesday, August 13

• JPY: Japan July PPI
• AUD: Australia August consumer and business confidence
• GBP: UK June unemployment, July jobless claims
• GER40 index: Germany August ZEW survey expectations
• ZAR: South Africa 2Q unemployment
• USD index: US July PPI; speech by Atlanta Fed President Raphael Bostic
• US30 index: Home Depot earnings

Wednesday, August 14

• NZD: RBNZ rate decision
• UK100 index: UK July CPI
• EU50 index: Eurozone 2Q GDP, June industrial production
• ZAR: South Africa June retail sales
• US500 index: US July CPI

Thursday, August 15

• JP225 index: Japan 2Q GDP
• AU2000 index: Australia July unemployment
• CNH: China July home prices, industrial production, retail sales, jobless rate
• GBP: UK 2Q GDP; June industrial production, trade balance
• NOK: Norway rate decision
• RUS2000 index: US weekly initial jobless claims; July retail sales and industrial production
• US30 index: Walmart earnings; speeches by St. Louis Fed President Alberto Musalem, Philadelphia Fed President Patrick Harker
• CHINAH index: Earnings from Alibaba, JD.com

Friday, August 16

• SG20 index: Singapore July exports
• GBP: UK July retail sales
• TWN index: Taiwan 2Q GDP
• US400 index: US August consumer sentiment; speech by Chicago Fed President Austan Goolsbee

 

For the coming week, we focus on the US30 stock index.

After all, the share prices of the 30 companies contained within this stock index are deemed to be more reflective of real economic conditions (as opposed to say growth/tech/AI stocks).

Hence, the imminent earnings releases by these major companies, along with the incoming top-tier economic data, could contribute to outsized trading opportunities for this stock index next week.

The events highlighted below may well determine if the US30 index can conquer its 50-day simple moving average (SMA) resistance that it's battled with all week long.

 

 

1) Tuesday, August 13th: Home Depot earnings (before US markets open)

The Home Depot is the world's largest home improvement specialty retailer, operating over 2,300 stores across North America (including Canada and Mexico).

In other words ...

Home Depot’s earnings are reflective of the strength of consumer spending.

Markets are set to interpret this retail giant’s earnings for signs if consumer spending is still resilient, or whether households are already reeling from high interest rates, persistent inflation, and recession fears.

Depending on the earnings release, markets forecast this stock could move by 5.5%, either up or down, once US markets reopen on Tuesday, just hours after the company’s earnings are released.

Home Depot accounts for 5.8% of the US30 index, making it the 4th biggest stock on the Dow Jones Industrial Average index / Dow / FXTM’s US30 index.

That means the market’s reaction to Home Depot's earnings could sway the broader US30 index in tandem.

Note that Tuesday also features the release of the US producer price index (PPI) and a speech by Atlanta Fed President Raphael Bostic, either of which could also sway the US30 index, in addition to Home Depot’s earnings.

 

 

2) Wednesday, August 14th: US July consumer price index (CPI)

The CPI is a widely followed measure of inflation.

And we know that red-hot inflation has been the bane of the Federal Reserve in recent years, though the US central bank has since made substantial progress in quelling it.

However, has it been enough? Or will the Fed be forced to maintain its benchmark rates at its current 23-year high of 5.5%?

Economists predict a soft and manageable uplift to the incoming CPI figures:

• CPI month-on-month (July 2024 vs. June 2024): 0.2%
  (if so, that would be a return to positive territory from June’s -0.1% month-on-month figure)
   
• CPI core (excluding food and energy prices) month-on-month: 0.2%
  (if so, that would be slightly higher from June’s 0.1% month-on-month figure)
   
• CPI year-on-year (July 2024 vs. July 2023): 3%
  (if so, that would match June’s 3% year-on-year figure)
   
• CPI core year-on-year: 3.2%
  (if so, that would be slightly lower than June’s 3.3% core year-on-year figure)

This incoming inflation data would be read as they pertain to the likelihood of Fed rate cuts, given that the US central bank now has to juggle between subduing inflation and not causing too much damage to the US jobs market, now more so in light of the recent surprise jump in US unemployment.

 

POTENTIAL SCENARIOS

• If the CPI comes in higher than expected, that may force the Fed to hold interest rates higher still while risking more damage to the US labour market.
  
  Should markets then perceive greater odds for a US recession, that could send the US30 index plummeting back below its 100-day SMA and towards its 200-day SMA.

 

• If the CPI comes in lower than expected, that should allow the Fed to lower interest rates in September to shore up support for the US labour market.
  
  If markets then believe that US recession risks are subsiding, that could see the US30 index rejoicing as it punches past its 50-day SMA and perhaps reaching the 40,000 mark.

 

 

3) Thursday, August 15th: Walmart earnings (before US markets open)

Walmart is a retail behemoth that serves about 255 million customers per week across some 10,500 stores, drawing over 80% of its revenue from its US customers.

Depending on what Walmart announces, markets forecast this stock could move by 5%, either up or down, once US markets reopen on Thursday, just hours after the company’s earnings are released.

Despite its sheer presence in the physical world, Walmart “merely” accounts for 1.1% of the US30 index.

Still, given how its earnings are reflective of US consumer spending habits, the market may well interpret Walmart’s earnings as an indicator of the US economic outlook.

The shifting odds of a US recession, via Walmart’s earnings, are bound to impact the US30 index’s performance as well.

Note that Thursday also features the release of the weekly US initial jobless claims, as well as July's retail sales and industrial production data, all of which could sway the US30 index as well, on top of Walmart's earnings.

 

 

Recession US30 Dow Jones index Earnings