Dow Jones is under $35K, FED meeting next week!
Ahead of next week's FOMC meeting, US data were mixed and market participants trying to guess what FED going to decide next week, while Thursday People Bank of China surprised us by cutting the prime rates by 10bp.
Last week we had the US inflation numbers printed at 7%, however, producer inflation has been decreasing. At the December employment data, which has been published in the early January NFP report, we could see the average earnings increasing also lowered. All these numbers tell us that FED can be right about decreasing inflation with economic improvement.
On the other hand, yesterday we had US employment data. In the labor market, initial jobless claims rose by 286,000 in the week ended Jan. 15. It is the highest level since October last year, to lift the four-week average also to 231K. In addition, the number of continuing claims for unemployment benefits also rose more than expected in the week ending on January 8, reaching 1.635 million. Overall, the softening in employment data may be related to the recent spread of the Omicron virus strain.
Yesterday we also had the Philadelphia Fed manufacturing index, which confirmed the great increase of 23.2, beating market expectations of 20.0 and the previous value of 15.4. This improvement, especially in new orders, and shipments tells us that we are on the right way to economic improvement.
After data was published, US Treasury Secretary Mrs. Yellen delivered a speech. She expects inflation to stay above 2 percent this year, but the US economy will remain supported for years to come, given the rising savings rate helps cushion the impact of reduced fiscal support. The Fed has also maintained some flexibility in tightening monetary policy. Since this month, the central bank has accelerated its monthly reduction in bond purchases to $30 billion from $15 billion in previous months.
On the earning front, United Airlines' stock price fell by 2.2% after it warned that it wouldn't return to pre-pandemic levels of capacity until next year at the earliest. And its Rival American Airlines Group reported a $931 million net loss for the fourth quarter to put the prices under pressure. Netflix (NFLX) also published its report with $1.33 EPS, better than $0.8454 expected with 7.71B revenue, which was in line with expectations.
And with all mentioned data and reports, the question is about the timing of the FED rate hike, and the start of balance sheet reduction, which may start in June. So far, since the labor market still can get more support, the economy slowly increasing and inflation is expected to slow down a bit, it does not seem too much logical to expect the FED to rush to implement more strict policies.
Therefore, given all these data, I can say that the current downtrend should not take a long, and the return should be much stronger to bring new records, especially in leading indices, like SP500, ND100, and DJI. As we can see in the bellow DJI daily chart, 34,500, the 200 DMA is the strong support and candles still were not be able to be close under this level. Breaching under this level will put the 34,000 in the spotlight. In all main charts, we are in a clear downtrend with key support at 34k. Therefore, as long as the price did not confirm strongly under this level, it can give us a better buying opportunity.