Markets choppy ahead of FOMC meeting and mixed Tech results
* Google tumbles after ad revenue, operating income miss
* Microsoft shares unimpressed by big top and bottom line beat
* Eurozone skirts recession with stagnant GDP in Q4
* Fed futures trim odds of a March rate cut to 42% ahead of FOMC
FX: USD continues to oscillate around its 200-day SMA at 103.51. Markets are obviously cautious ahead of the big risk events coming up. US yields drifted lower before turning around on the stronger JOLTs data. They eventually closed on their lows close to 4%. Powell has the keys to medium-term direction with the dollar up over 2% this month.
EUR steadied as the region averted a technical recession and settled for stagnation. Data also showed higher than expected inflation in Spain. European yields nudged higher and gave the euro a small bid. The 200-day SMA is 1.0841. The major closed just above as it awaits the Fed meeting.
GBP lagged its peers as EUR/GBP rebounded strongly from the low 0.85 area. But cable ultimately remained above its 50-day SMA at 1.2666. The Bank of England convenes on Thursday with a “super” meeting with a fresh set of economic forecasts and press conference.
USD/JPY printed a doji after jumping higher on the US data, only to fall back through the session. The 100-day SMA sit at 147.52 and is a pivot point.
AUD fell back into the recent range after printing a two-week high intraday. The 200-day SMA is at 0.6675 and is initial support. USD/CAD fell for fourth straight day ahead of Canada GDP. Positive risk sentiment and strengthening crude prices had seen the major potentially build a reversal head and shoulders pattern with the target near 1.33.
Stocks: US equities were mixed with tech underperforming while the Dow made another record high. The benchmark S&P 500 lost 0.06% to settle at 4,924. The tech-heavy Nasdaq 100 moved 0.68% lower to finish at 17,476. The Dow Jones outperformed closing 0.35% higher at 38,467. Shares of Alphabet and Microsoft fell in extended trading after the tech giants released their earnings reports. The former was down over 4% as the rebound in digital advertising fell short of analyst’s lofty estimates. MSFT reported record sales for a fifth straight quarter with the cloud business boosting overall revenue. Earlier in the session, GM delivered a strong 2024 forecast while UPS forecast this year’s revenue below expectations.
Asian futures are in the red. APAC stocks traded mixed as China weakness offset momentum from more fresh record highs on Wall Street. The ASX 200 closed in the green, but upside was capped after disappointing retail sales. The Nikkei 225 initially rose after a surprise drop in Japan jobs data, but eventually pared most of its gains.
Gold popped higher to $2048 before yields turned abruptly higher on US data and saw selling in the precious metal. This reversed again later with a small gain by the close. The 50-day SMA is at $2029.
Day Ahead – China PMIs, Australia CPI and FOMC Meeting
Chinese releases this week will chiefly comprise the manufacturing surveys for January due today (official PMI) and Thursday (Caixin PMI). These will be closely watched to gauge the health of the recovery. The quarterly CPI figures out of Australia will be key with the RBA meeting on February 6. Consensus is looking for a quarterly increase of 0.8% (prior 1.2%) and a decline to 4.3% in Q4 (prior 5.4%) slightly under the RBA’s 4.5% projection. The “core” is seen at 0.9% for the quarter and 4.4% annually, marginally beneath the RBA’s 4.5% forecast. A larger-than-forecast fall would be negative for the aussie.
The FOMC will keep rates unchanged at a 22-year high for a fourth straight meeting. It is expected to downplay chances of any imminent action after the dovish shift in Fed forecasts last month. That unleashed overly aggressive rate cut bets which have been reined in over the last few weeks. A more neutral bias is anticipated this time. That means any hints on the size and timing policy easing will be seized upon. March rate cut odds have slipped to just above 40% from well above 80% only a few weeks ago.
Chart of the Day – AUD supported by 200-day SMA and Fib level
AUD/USD will battle with inflation data first up before the Fed meeting tomorrow. There is increased speculation that fresh RBA forecast next week could hint it will take longer to return to the bank’s CPI target than previously predicted. That means the bank will possibly be more hawkish than the FOMC. All things equal, this should support AUD. But obviously much depends on how hawkish Powell is tomorrow.
Prices have tracked sideways for a couple of weeks now. The 200-day SMA is currently support at 0.6575. The 50% level of the November rally sits at 0.6571 reinforcing this zone. The Fib level either side of here reside at 0.6641 and 0.6500.