FOMC meeting to shed light on March cut chances

• French CPI declines, while Chinese stocks weaken.

• Alphabet and Microsoft set for losses at the open.

• FOMC meeting to shed light on March cut chances.

European markets are treading water this morning, despite an encouraging French PMI survey that lifted hopes of a decline for tomorrows eurozone figure. Nonetheless, yesterday’s earnings from Microsoft and Alphabet look set to drag US indices lower at the open today, with both set for chunky declines despite relatively strong earnings. The Chinese fallout from the Evergrande announcement continues, with the Hang Seng and Shanghai composite both losing ground overnight. That came despite improved manufacturing and non-manufacturing PMI surveys out of China, while we also saw two cities ease their home buying restrictions in a big to alleviate some of the real estate pressure expected in the wake of the Evergrande liquidation.

While yesterday brought the first batch of big tech earnings, today sees markets bear the brunt of a somewhat underwhelmed response as Microsoft (-1.5%) and Alphabet (-5%) gear up for losses at the open. Once again, we are seeing lofty expectations impact market sentiment even in the case of improved earnings, with both Microsoft and Alphabet losing ground despite beating across earnings and revenues. Clearly markets have priced in substantial gains from AI that are yet to materialise, and thus while we are seeing steady inroads made over recent quarters, investors are yet to see the huge boom that they might have expected coming into these reports. Nonetheless, AI is here to stay, and whilst it may be a slow and steady adoption process, the future likely puts AI at the centre of every multinational business going forward.

Markets are eagerly anticipated today's meeting from the Federal Reserve with traders looking for signs over whether a March rate cut is plausible. With inflation elevated and the US economy growing at a healthy clip, the justification for a cut in just over seven weeks is questionable as things stand. Nonetheless, markets are currently pricing a 46% chance of a March cut, bringing potential volatility once Powell & co guide markets on exactly when we should expect to see the pivot occur.