Recent weakening of commodity prices and signs of slowing economic growth tempered market expectation over the Fed’s rate hike. Among metals, copper suffered the largest weekly fall within the year, at over -6%. In energy sector, UK gas and natural gas are down over 15% and 10% respectively, while crude oil also closed lower for the third consecutive week, down nearly 2%. Some products from agricultural and industrial sectors were also down (Source: Trading Economics).
Signs of economic recession hit market sentiment; participants are now pricing in for the benchmark rate to 3.5% (previously 4.0%) by March next year. Rising recession risk in general affects the outlook for the Fed’s monetary policy, thus lifting the Wall Street’s main indices: S&P500 up +3.46% to 3912, while the Nasdaq and Dow Jones were up 3.75% and 3.03% to 12087 and 31482, respectively. “All 11 of the benchmark index’s sectors ended at least 1.5% higher”.
In addition, most of the US banks stock prices surged higher following the sector passing the Fed’s annual stress test – a report that probes a bank’s capability to maintain enough capital to weather a severe economic downturn. Unlike some major banks, which are expected to increase their stress capital buffers (SCB), Wells Fargo SCB is likely to remain almost unchanged from last year – This explains Wells Fargo being the winner out of its rivals, with gains over 6% intraday.
Wells Fargo is expected to release its Q2/2022 earnings announcement on 15th July. Market consensus for sales revenue stood at $17.79B, up +1.14% (q/q) but down -13.9% (y/y). Earnings per share (EPS) is expected to hit $0.92, up 4.55% from previous quarter but down nearly 49% from the same period last year.
Technical Analysis:
The Daily chart displayed #WellsFargo rebounded higher after gaining its foot above $35.86 – $36.53. In a bigger picture, the bank’s stock price remains traded in a bearish trend. To further clarify technical correction, it must break the nearest resistance at $40.53, followed by minor resistance at $42.14 and the $45.19-$45.61 resistance zone. The 100-day SMA serves as an important indicator in which a strong bullish break (sustain and without a strong retrace afterward) above it may indicate a change in medium-long term direction. On the other hand, if bullish breakout unsuccessful, the downward trend may resume towards testing support $35.86-$38.53, followed by psychological level $34.00 and $29.22.
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Larince Zhang
Market Analyst
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