Mixed results, mixed data, mixed sentiment

Trading in the US was eventless, except for the wild moves that marked the opening bell at the NYSE. 

The S&P 500 swung around the 4000, without any major moves up or down, as investors remained undecided faced with mixed company earnings, and mixed economic data. 

Both US services and manufacturing PMI came in better than expected in January, but both remain in the contraction zone. While the Richmond Manufacturing index fell to -11, significantly lower than -5 expected by analysts.  

In summary, the data confirmed a certain slowdown in US economic activity, but it didn’t point to a free fall.  

The US 2-year yield fell for the second straight session, as the soft data kept the Federal Reserve (Fed) doves at a soft and warm spot.  

But at the current levels, the swap market suggests around 48 bp rate increase over the next two FOMC meetings. This means that the present activity in the swap market gives around 8% probability for no rate hike at all after the Fed’s February meeting.  

And if that’s what keeps the S&P500 bid around the 4000 mark, it’s worrying. 

Earnings, earnings 

The S&P 500 could or could not get a boost from Microsoft at today’s session, as Microsoft announced better-than-expected results yesterday after the market close, but the results were not all rosy. The revenue – which grew at its slowest pace since 2016 - slightly missed expectations, but the earnings beat estimates. The Intelligent Cloud segment grew 18%, as the Azure services grew 31% - slower than the past quarter but better than expected with the prospects of being further boosted by the ChatGPT deal. The shares rallied 5% in the afterhours, but gains were mostly given back.  

S&P 500 futures are down -0.40% at the time of writing. 

Today, it’s Tesla’s turn to go to the earnings confessional after the bell, and nobody can tell you with confidence what will happen to the share price once the results are freshly out of the oven.  

Tesla is doing very well, the company announced record car deliveries quarter after quarter, but the record deliveries weren’t enough to meet the market expectations over the past three quarters. And unfortunately, the expectations make the market price, and missing them is no good thing for the share price. 

In the FX 

The US dollar remains under the pressure of soft data, and worryingly softening Fed expectations, while the euro got the boost that we were hoping for at yesterday’s PMI release.  

The EURUSD is again testing the 1.09 level to the upside this morning. And the gently widening divergence between the hawkish European Central Bank (ECB) expectations and the dovish Fed expectations remains supportive of a further advance. But be careful, the pair is about to step into the overbought market, which could slow the rally into the 1.10 target. 

Across the Channel, the numbers were not as enchanting as on the main continent, and no one is surprised I guess to see the services PMI plunge to 48 in January with all the strikes going on. The manufacturing PMI on the other hand contracted less than expected but a new report suggested that the number of UK firms facing collapse jumped by more than a third at the end of last year.  

Cable plunged below its year-to-date ascending channel, and the euro-pound is bought without much hesitation at the 50, 100-DMA levels, and should continue pressuring higher on a broadly stronger euro.  

In Canada, the Bank of Canada (BoC) is preparing to announce its final 25bp hike. The dollar-CAD puts more weight into clearing the 1.3350 support, but crude oil is not helping, as the price of a barrel of American crude continues bumping its head against the solid $82pb wall, the 100-DMA, without being able to break it to the upside.  

The API data showed almost 3.4-million-barrel build in the US inventories last week, hinting that the more official EIA data could also disappoint the bulls at today’s read.  

But the medium term outlook for crude oil remains positive, therefore, price pullbacks remain interesting dip buying opportunities as long as the 50-DMA support, which stands a touch below the $78pb mark, holds.