The SNP500 Pushes Higher but is the Asset Trading Above its Intrinsic Value?
- The SNP500 again attempts to renew its all-time high after more positive earnings data.
- EU Stocks trade lower on Wednesday and US Bond Yields rise 0.037%. Investors are considering if this indicates possible pressure on US indices after the US market opens.
- The US Dollar declines in value and fully corrects gains from earlier in the week. However, economists advise higher inflation data can significantly strengthen the Dollar.
USA500
The USA500 is trading significantly higher and gaining momentum as we approach the US open. However, economists are worried the momentum cannot be maintained judging on the day’s influential factors. Japanese, German and French indices have declined so far, and the US bond yields are trading significantly higher which makes stocks less attractive.
Yesterday, January’s business activity data were released, revealing positive trends. The Services PMI rose from 51.4 points to 52.5 points, slightly below the anticipated 52.9 points, while the Composite PMI climbed from 50.9 points to 52.0 points, also falling short of the expected 52.3 points. Additionally, the ISM non-manufacturing supply managers index surged from 50.5 points to 53.4 points in January. The economic data continues to indicate a resilient economy as do earnings from quarterly reports. The latest earnings data from Amgen beat earnings and revenue expectations.
However, the question remains as to whether the price is trading above its intrinsic value and if the asset will continue to compete if inflation does not fall. However, a positive factor for the day is the decline in the US Dollar which makes stocks cheaper to buy and can increase demand.
USDJPY
The US Dollar has been increasing in value against the Japanese Yen throughout both sessions. Investors should note the Dollar is only increasing in value against the Yen and not the market. The price of the Yen is decreasing in value against all currencies. Even though the Dollar is declining, traders are monitoring how the price condition can change as we switch sessions.
Investors are taking note of the latest comments from the head of the Federal Reserve Bank (FRB) of Cleveland, Loretta Mester, and the chairman of the Federal Reserve Bank (FRB) of Minneapolis, Neel Kashkari. Both indicate the time to cut interest rates has not yet arrived and that strong employment allows them to keep interest rates high. The price of the Dollar will depend on how frequent cuts will be and when the first cut will come. Most economists believe the BoE and ECB will wait for the Fed to cut before slashing rates for themselves.
If the Dollar does increase in value after the session opens, investors should keep in mind the Yen short-term weakness. However, in the longer term, economists expect the Yen to perform well due to being the only central bank expected to increase interest rates. The USDJPY is currently trading above the 75-bar EMA and above the “neutral” on the RSI. Both indicate possible upward price action in the short term. However, if the price declines 0.20%, the signal is likely to change in favor of the Yen.
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