Tue, Dec 06, 2022 @ 16:28 GMT
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Big Tech Lead Selloff – USD Softens, as ECB Meets

Yesterday wasn’t a good day for the US Big Tech. Google dived almost 10% after reporting disappointing results, while Microsoft sank almost 8%.

Nasdaq bounced 2% lower after having tested the major 38.2% Fibonacci retracement, a touch below the 11700.

And don’t expect things to look better today. Meta dived another 20% in the afterhours trading, after announcing disappointed results.

Could earnings from Amazon and Apple eventually cheer up the folks?

We will see. Apple’s EPS is expected to have risen around 2.4% in the latest quarter, the services revenue is seen 10% higher, year-on-year, and the total revenue may have increased around 6.3%. The company lately decided, and undecided to increase iPhone production. The slowing China, and the strong US dollar could be challenges for the most profitable holidays season.

Apple shares lost up to 23% since the beginning of the year, but rebounded up to 13% since the October dip. From a technical perspective, we are at a critical point. The stock should stay above the major 38.2% Fibonacci retracement on year-to-date rally to remain in the bullish consolidation zone. Any misstep in the results could send the stock back into the bearish waters.

Amazon, on the other hand, is facing a visible weakness in its e-commerce sales. As for Google and Microsoft, the cloud business could come to the rescue, but may not be enough. Amazon shares remain well below their long-term bullish trend base, which makes it an interesting ‘buy’ target for the long-term investors. But, of course, it doesn’t mean that Amazon won’t dive further if results disappoint investors.

Policy pivot?

The Bank of Canada (BoC) raised its rate by only 50bp yesterday, versus 75bp hike expected by analysts.

The latter has been perceived as a sign that maybe – but just maybe – a global policy pivot is approaching.

Despite the more dovish policy action, the Loonie gained against the US dollar, mostly because the US dollar lost against most currencies across the board.

The US dollar index dived below its 50-DMA yesterday, as US home sales fell almost 11% in September, as another sign that the US economy is well suffering from the aggressive rate hike policy that the Federal Reserve (Fed) is conducting.

For now, the weak economic data, and the BoC’s dovish action didn’t really impacted the expectation of another 75bp hike from the Fed next week – given more than 90% probability.

Due today, the latest US GDP update will be important for the Fed expectations. The US reported two back-to-back negative quarterly growth, which started a broad debate on whether the world’s number one economy entered recession. Although the numbers confirmed that the US is in a technical recession, many economists and officials downplayed the data, saying that the US economy remains strong.

This time, we could see the contrary happen. The US could print a 2.3% GDP growth, yet, in a deteriorating economic environment. The latest GDP figure is certainly boosted by higher net exports. The growing energy exports to Europe certainly help, but the slowing imports – despite the strong dollar, hint that the domestic demand is slowing. Add the slowing investment in housing due to soaring mortgage rates, we must certainly look deeper into today’s GDP report to drive conclusions about the health of the US economy.

In all cases, a softer-than-expected GDP print will help keeping the Fed hawks at bay.

And this is what everyone, massively, needs right now.

Softer dollar, finally

The softer US dollar is being cheered across the FX space. The EURUSD rallied past the 50-DMA, pulled out the 1.00 offers and is now testing the 100-DMA for the first time since February, as Cable consolidates above the 1.16 mark. The new PM Rishi Sunak announced that the announcement of the fiscal plan from October 31 to November 17, but investors have been fine with it. Everyone understands that Sunak needs time to ‘make the right decisions’, and the confidence is partially restored. The only problem is, the Bank of England (BoE) must decide next week without knowing what Sunak will do on the fiscal end. But, even the BoE is fine with the delay – as long as the market remains calm.
ECB to get more hawkish despite looming recession

The European Central Bank (ECB) is expected to hike the interest rates by another 75bp point, and begin discussing when to start unwinding the balance sheet.

European politicians are, of course, not happy with the rising interest rates, as the continent has certainly stepped into recession amid the energy crisis and the fast-slowing activity. The new Italian PM Meloni, and French President Macron have been critical about the hawkish ECB stance. But there is nothing else the ECB could do right now. If it doesn’t go ahead with the rate hikes as promised, the Europeans will fall behind in the global tightening race. The latter would further hit the euro and boost inflation which already reached double-digit levels in the eurozone.

A 75bp hike, and a hawkish statement from Christine Lagarde will likely keep the euro upbeat above parity, as long as the US dollar remains soft.

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