Welcome to the Key to Markets preview of the Week Ahead.
5-day performance as of January 26th, 2023. 10:00 GMT
In case you missed it…
BoC signals intent to pause rate hikes. The BoC slowed the pace of rate hikes to 25 basis points and signalled its intentions to keep rates on hold for now.
Australian inflation rose to a 30-year high. Inflation jumped to 7.8% in Q4 raising bets that the RBA will continue hiking rates and lifting AUD/USD above to 0.71 to a 5-month high.
Chevron posted record profits. The oil major has reaped rewards from rising oil prices and announced plans for a $75 billion share buyback programme.
Gold rose to a 9-month high. The precious metal rallied to 1949 as the USD weakened and the market priced in two 25 basis point cuts by the end of the year.
Eurozone business activity unexpectedly expands. The composite PMI unexpectedly rose to 50.7, crossing the 50 mark, which separates expansion from contraction. EUR/USD rose to a 9-month high.
Ford cuts 3200 jobs in Europe. The automobile maker is cutting costs and shifting its focus to EV, an increasingly competitive sector. As a result, massive job losses in Europe are planned.
EasyJet rises 13% on record bookings. The budget airline forecasts a return to profit, despite the economic downturn, as demand continues its post pandemic recovery.
Microsoft drops on slowing revenue growth. The tech giant reported the slowest revenue growth in 6 years of just 2%, missing forecasts. EPS of $2.32 was down 12% but ahead of the $2.30 forecast.
Tesla beats posts record quarterly revenue & profit. The EV maker reported $24.32 billion in revenue, a 37% rise, and EPS rose to $1.19, ahead of the $1.13 forecast. The share price jumped 7% after hours.
US Q4 GDP. The US economy grew at a slightly slowing pace in Q4, at 2.6%, down from 3.2% in Q3, as the Fed’s rate hikes slowed domestic demand.
Source: The daily shot
As earnings season ramps up news of layoffs have been on the rise. This has primarily been in the tech sector as demand slows after a pandemic boom era. Tech has announced 50k layoffs over the past month.
However there are signs that this is spreading to new corners of corporate America. For example, Goldman Sachs announced 3200 layoffs in its largest cull since the financial crisis. However, not all sectors are being affected. In fact some areas are still actively hiring.
The chart highlights the industries which were gaining and shedding workers in December 2022, which could be cyclical, but as Richard Bernstein Advisors point out, “hiring is also starting to mirror the longer term strategic focus on productive assets.”
1. Fed rate decision (&NFP)
The market is pricing in a 25-basis point rate hike on Wednesday, 1st February, taking the rate to 4.25%-4,5%. This comes after a 50-basis point hike in December and as inflation continues to show signs of cooling from a 9% peak in June to 7% in November. Still, this is well above the Fed’s 2% target, and given the solid labour market, with wage growth of 6%, the Fed clearly still has more work to do. Markets see March as the possible final hike in this cycle and could be watching for clues from the Fed supporting this view. It’s worth noting that the US jobs report is due on Friday; however, this is likely to play second fiddle to the FOMC meeting, particularly as there is another jobs report ahead of the March meeting.
2. ECB rate decision
The ECB will announce its interest rate decision on Thursday and is expected to raise rates by a further 50 basis points. The move comes after a 50-basis point hike in December and 75 bps hike prior to that. The move is set to take the key rate to 2.5%. While inflation is cooling and data suggests that the eurozone could see a milder recession than initially feared, ECB policymakers, including ECB President Christine Lagarde, have been vocal in their support for a few more rate hikes over the coming months, keeping the EUR supported.
3. BoE rate decision
The BoE is widely expected to announce another 50 basis point rate hike on Thursday. This will mark the 10th straight interest rate hike and takes the benchmark rate to 4%, in the most aggressive tightening cycle since the late 1990s. The central bank continues its fight against inflation which remains stubbornly high in double digits. That said, there are growing expectations that the BoE is nearing the end of its hiking cycle after BoE Governor Andrew Bailey hinted at a 4.5% terminal rate. Any suggestions that this could be the case could drag on the pound.
4. Apple Q1 earnings
The tech giant is due to release Q1 earnings as the stock trades at around a 5-week high, having risen over 13% from the January low. However, the current price is still some 25% down from January 2022. During the fiscal Q4 earnings, Apple gave no specific guidance for revenue but said that sales performance would likely decelerate from September’s revenue growth of 8%. Wall Street is expecting revenue of $122.4 billion, a -1.3% annual decline, and EPS of $1.96, marking a -6.5% YoY decline.
5. Alphabet Q4 earnings
Google parent Alphabet is due to report Q4 earnings after the close on Thursday. The report comes after Alphabet announced plans to cut 12,000 jobs in its largest round of layoffs ever as demand normalises following the pandemic rush. While ad revenue is expected to slow as firms rein in marketing spend, the cloud services were still seeing strong growth in Q3. Alphabet trades up 11% so far this year at a six-week high but still trades down over 30% compared to January 2022. Q4 revenue is expected to rise 2.1% to $63 billion, and Q4 EPS is expected to fall 23.5% to $1.17.
Economic Calendar Highlights
TA of the major asset classes (Forex – Commodities – Indices…).
EUR/USD (Daily Candlestick Chart)
EUR/USD is in an uptrend, posting higher lows and above the 50 SMA.
A slow momentum breakout over 1.086, the previous peak suggests a test of the 1.10 round number, while 1.115 lies above. A deeper pullback could test the twin peaks at 1.070.
GBP/USD (Daily Candlestick Chart)
GBP/USD is in an uptrend, posting higher lows and above the 50 SMA.
A bullish engulfing candlestick after a two-day pullback suggests the resistance at 1.244 will soon be broken with 1.266 next resistance. Another leg low could test 1.210 then 1.184.
USD/JPY (H4 Candlestick Chart)
USD/JPY is in a downtrend, posting lower highs and below the 50 SMA.
The long-wicked candle that tested support-turned resistance at 130.5 resulted in limited follow-through-selling, suggesting a near term bottom. The down trendline would need to break to confirm a trend reversal.
Gold (Daily Candlestick Chart)
XAU/USD is in an uptrend with a series of higher lows and above the 50 SMA.
Price looks overbought having not touched the 50 DMA since November, however long-wicked candles off 1916 support suggest buying pressure and likely test of 1960-72.
Brent Oil (Daily Candlestick Chart)
XBRENT is in a sideways trend after breaking the 50 SMA.
A higher low and break of the prior high at 86.87 shows the price attempting a trend reversal. The downtrend has been choppy so a break of the down trendline would be needed to prove the downtrend has ended.
US500 (Daily Candlestick Chart)
XUS500 is in a new uptrend after forming higher highs and lows and breaking the 50 SMA.
A long-wicked candle that successfully held the 50 SMA shows buying pressure and likely continuation higher further from the broken downtrend line. Next resistance is 4040.
Thank you very much for reading – and have a great week trading!
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