A difficult day ahead: earnings season, US GDP and Fed day

Apr 29, 2020

The pressure on the dollar in the foreign exchange market this week is a direct result of the sharp rise in optimism in the financial markets. Which in turn is connected with the news about the gradual and soon exit of many countries from the lockdown.

Today will be very important day for both the dollar and the US stock market. US GDP statistics for the first quarter will be published. Analysts expect a decrease of 4%. Although there are pessimists who expect a deeper fall up to 20-30%. This is about the estimates of the White House economic adviser Kevin Hassett. In our opinion, this is rather an attempt to scare the markets, since 2/3 of the first quarter were for the United States outside the lockdown. That is, we will see all the power of negativity only in the second quarter.

In any case, you should be prepared for weak data. It sounds strange but weak data will play in favor of dollar. So today we recommend to buy it.

After then the Fed will say its word. Interest rate will almost certainly be left unchanged (100% of traders believe this). But a statement of the fact of a sharp deterioration in the US economy may well return buyers in the stock markets to reality.

Our position in the stock market is unchanged in any case: only sales. Let's pay attention to another interesting fact regarding the SP500 index. Currently, only 5 companies (Facebook, Google, Apple, Microsoft, and Amazon) make up 20% of the index capitalization. This makes its dynamics totally dependent on the behavior of stock prices of these companies.

Today report Facebook and Microsoft, and tomorrow Apple and Amazon. If markets will be disappointed by their figures, this could trigger a sharp drop in the entire US stock market.

Recall that when market power begins to concentrate in the hands of a limited number of players, this leads to vulnerability of the entire market. You don’t have to go far for an example: the oil market and the USO ETF fund. Another fund re-positioning this week triggered a new round of oil sales.

Google already reported yesterday and, unlike the vast majority of other companies, were able to show better results than analysts had expected. However, this exception only confirms the rule: the most of the companies show a sharp decline in profits right up to the transition to the territory of losses.