Fundamental Forecast for Equities:Bullish

Equity Analysis and News

• Nasdaq 100 Eyes Another Record as the FAANG Stocks Report Earnings
• DAX Hoping for Boost from Easing EU-US Trade Tensions, While ECB Presents Risk

Nasdaq 100

Strong start to earning season

Q2 earning season has gotten off to a firm start with 87/500 S&P companies having reported thus far. 84% of which have beaten earnings forecasts, while 74% have posted better than expected revenue figures. Tech and healthcare names have been the outperforming sectors, consequently, the Nasdaq 100 yet again posted a fresh record high.

Source: Thomson Reuters

Given that earnings have tech and healthcare firms have performed strongly to begin the earning season, FAANG stocks will be reporting next week. (Alphabet, Amazon and Facebook). This bodes well for the Nasdaq 100 given the outperformance throughout the year and as such increases the possibility that the index will yet again print a fresh record high.

Nasdaq 100 Price Chart: Daily Time Frame (February-July 2018)

Chart by IG

Nasdaq 100 Technical Overview

The market continues to provide support for the index above the 7200 level, while momentum indicators signal that the bias is towards the upside. The 7400 level continues to keep price action capped for now, however, a potential follow through could potentially lead a charge towards the psychological 7500 area.

DAX

EU-US Trade Tensions

Trade wars is at the forefront of investors mind which has led to a cloud of uncertainty for equity markets. This week, EU’s Juncker and Malmstrom will be meeting with President Trump on July 25th, whereby both EU representatives will be looking to ease trade tensions. This has centered around the auto sector in recent time with the EU having higher tariffs on cars at 10% compared to the US at 2%. Trump has previously threatened to hike tariffs on cars and auto parts from the EU to 20% if tariff rates are not lower.

Consequently, an easing of the trade dispute between the EU and US will likely provide a boost for the auto heavy DAX index. German auto names, Daimler, Volkswagen and BMWmake up roughly 12.5% of the DAX.

Aside from trade uncertainties, the latest ECB meeting is scheduled on Thursday. As the ECB begin to exit from its ultra-loose monetary policy, investors will be keeping a close eye on the current view among the council over recent developments. However, it is likely that the ECB will largely stick to the script that risks to the economy are broadly balanced and that they are confident that inflation is on a sustained upward trajectory. As such, volatility for the Euro may be somewhat low and thus keeping price action in the DAX to a minimal.

DAX Technical Overview

From a technical perspective, RSI indicators are shifting to the downside and such suggesting that trend signals are weak. Consequently, 12,400 will garner attention for support, while on the upside a break above the July 18th high would be needed in order to bring the psychological 13,000 level into focus.