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Google and Microsoft reversed the joyful Tuesday sentiment. The US dollar and the US yields fall on soft economic data – that tempered the hawkish Federal Reserve (Fed) expectations.

The Bank of Canada (BoC) is about to deliver another jumbo rate hike, while Meta will be the next Big Tech to report earnings today.

Happy, but not for long

Most US indices rallied yesterday on the back of soft economic data from the US, but the sentiment reversed after the Q3 results from Google and Microsoft failed to please.

The data release yesterday in the US showed that the US consumer confidence and the Richmond manufacturing index fell significantly more than expected, while the US home prices fell for the second time in a row in August.

The latest data was good for inflation expectations, and good for recession fears, which both temper the Fed hawks a week before the Fed is preparing to announce another 75 bp hike in its rates.

The US 2-year yield has been easing after hitting a fresh 15-year high last week, as the US 10-year yield fell to 4.05%. The dollar index tanked around 1%, both the EURUSD and Cable advanced past their 50-DMA, which were acting as strong resistance since the start of the year, especially since the start of the war in Ukraine.

The USDCAD fell to a 3-week low, as the Bank of Canada (BoC) prepares to deliver another jumbo rate hike today. The BoC could deliver a 75bp hike, which would further fuel the odds of recession in Canada by next year.

Now, it’s important to note that the common denominator of the latest FX moves is the softer US dollar. And the downside moves in dollar and the US yields depend on Fed expectations – whatever the other central banks do seem accessory to the main dollar story.

Therefore, it’s worth noting that the Fed expectations have been shaped by softish data, and some softish comments from the Fed officials recently. But there is nothing official pointing at a potential softening tone from the Fed just yet. Hence, the recent fall in the US dollar, and rebound in equities may not last. Gains remain vulnerable. And very much so, as the latest results from the US tech giants failed to make the investors smile yesterday.

Earnings

Google’s cloud segment grew by an impressive 38% in Q3, but the core ad business made only 3%. So Alphabet ended up disappointing on both revenue and profit expectations. The stock price dived 6.50% in afterhours trading.

Microsoft managed to beat revenue and profit expectations slightly, thanks to a better-than-expected performance on PC and its productivity segment, which include products like Office and LinkedIn. The cloud revenue grew 20%. But that 20% was clearly not enough to bring investors on board. Microsoft stock fell around 6.5% after bell, as well.

Elsewhere, results were mixed after posting better-than-expected Q3 profit, and giving a surprisingly upbeat outlook. When you think that FedEx has fallen off a cliff after doing the exact opposite in September, you understand how important picking the right stock will be in the next market recovery, whenever it comes.

No fireworks expected from Meta

It’s sure that if the other tech giants saw their ad revenues slow, Facebook will hardly do better

The EPS is expected to drop from $2.46 to around $1.90. The challenging advertisement business, the strong US dollar and the rising competition from TikTok may have further weighed on Meta’s results, while there is little chance that the metaverse segment delivers anything enough promising to reverse the fortunes.

Mark Zuckerberg hopes that Meta’s Horizon Worlds would amass 1 billon users, but he will have to wait a while. For now, there are no more than around 200’000 people on Horizons World, down from around 300’000 in February.

Market movers today

In a fairly thin data calendar today, the big event of the day is the Bank of Canada monetary policy announcement this afternoon. Markets and analysts are roughly evenly split between a 75bp and a 50bp hike. As our base case we pencil in a 50bp hike alongside a final 25bp hike in December.

In the US we get new home sales which should get some attention as historically it has tended to co-vary with unemployment rates.

The 60 second overview

Markets: sentiment remains fragile and nervous as evident from the daily volatility and considerable market moves across asset classes. Yesterday's session was dominated by a fall in US rates following worse-than-expected consumer confidence data and not least US house prices. The housing markets is increasingly getting attention as the surge in mortgage rates seems likely to drag the housing market lower and at some point contribute to higher unemployment rates. More air in the labour market seems like a necessary condition for Fed to slow its tightening pace and markets put a higher probability of an earlier pivot following yesterday's releases.

The move lower in yields was most pronounced in longer-dated yields driving a flattening and further inversion of most parts of the USD-curve. The USD exchange rate weakened, real rates moved lower and equities paradoxically implicitly rallied on the weaker bunch of data. This morning most Asian equity indices are trading in green while US equity futures are solidly in red following a few prominent disappointing earnings reports out post yesterday's stock market close.

UK Politics: The new PM Rishi Sunak yesterday announced his cabinet which marked a comeback to several former ministers. While markets had already reacted positively to news that Sunak would keep Jeremy Hunt as his Chancellor of the Exchequer it was a slightly negative surprise that Sunak could not confirm that a fiscal strategy will still be presented on 31 October. Fiscal clarity is crucial ahead of the 3 November Bank of England meeting. Over the last month the outlook for more fiscal prudence in the UK has driven a repricing of the short-end with the peak in policy rate pricing having gone from 6.25% to 4.95% by next summer.

Danmarks Nationalbank: We think it is a 70/30 call if tomorrow Danmarks Nationalbank (DN) will decide to hike policy rates by 10bp less than the ECB as a response to recent DKK strength and FX intervention selling. Markets seem 50/50 evenly split. Either way, we look for a small reaction in EUR/DKK. If we are right, we expect a rise to at most a level of around 7.4420-30. If we are wrong, and DN follows ECB 1:1, we look for the cross to drop back to the 7.4363 floor which would likely maintain market speculations of a smaller Danish rate hike compared to the ECB in December.

Equities: Equities were higher yesterday although macro data were weak and hence the tendency that "bad data is good data" continues as long as yields are dropping. Most sectors lifted with energy left behind. Advances were driven by cyclicals, growth and small caps with VIX dropping 1.5 points to just north of 28. Weak earnings results coming in mostly after the bell in US and hence more reflected in the futures today and not the cash performance yesterday. In US yesterday, Dow +1.1%, S&P 500 +1.6%, Nasdaq +2.3% and Russell 2000 +2.7%. Asian markets are higher this morning while US futures, especially tech are lower this morning.

FI: It was another day with big moves in the global bond markets as the bond market rallied massively from the long end of the curve. 10Y US Treasury yields declined by 16bp yesterday and the 2Y-10Y curve flattened by 14bp as house prices declined. The German 10Y yield fell by 16bp and curve flattened as well ahead of the ECB meeting on Thursday.

FX: USD traded poorly yesterday vs G10. EUR/USD made a sharp move higher, breached 0.99 and challenged parity before dropping back toward the mid-0.99s. Triggers were seen in US data that pulled rates lower under bull-flattening and bolstered equities and thus overall risk sentiment. Cable gained and is back above 1.14 after the appointment of Rishi Sunak. Scandies were also among the winners with both EUR/NOK and EUR/SEK on the defensive, the latter dropped close to 10 figures.

Credit: Credit markets continued in a good mood on Tuesday as the relief rally in risky assets continued. Itrax main tightened 5.1bp to close at 116.5bp while Itrax Xover tightened 17.7bp to close at 567.7bp. Tuesday also saw decent primary activity, with both financials and corporates testing the waters.

Daily Pivots: (S1) 0.9886; (P) 0.9932; (R1) 1.0013; More...

Immediate focus is now on 0.9998 resistance in EUR/USD. Decisive break there will confirm resumption of rebound from 0.9534. More importantly, that should also indicate medium term bottoming at 0.9534, on bullish convergence condition in daily MACD. Stronger rise should then be seen to 38.2% retracement of 1.1494 to 0.9534 at 1.0283. On the downside, break of 0.9630 will resume larger down trend through 0.9534 instead.

In the bigger picture, the case of medium term bottoming at 0.9534 building up. While it is too early to call for trend reversal, firm break of 0.9998 will open up stronger rebound back to 55 week EMA (now at 1.0630) even as a corrective rise. Meanwhile, firm break of 0.9534 will resume larger down trend to 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694.

Daily Pivots: (S1) 1.1328; (P) 1.1413; (R1) 1.1558; More...

Immediate focus in on 1.1494 in GBP/USD. Break there will resume the rise from 1.0351 to 61.8% projection of 1.0351 to 1.1494 from 1.0922 at 1.1628. Further break there will pave the way to 100% projection at 1.2065. In any case, further rally will remain in favor as long as 1.022 support holds.

In the bigger picture, fall from 1.4248 (2018 high) is part of the long term down trend from 2.1161 (2007 high). Outlook will stay bearish as long as 1.1759 support turned resistance holds. Parity would be the next target on resumption. Nevertheless, firm break of 1.1759 will confirm medium term bottoming, and open up stronger rise back to 55 week EMA (now at 1.2389).

Daily Pivots: (S1) 0.9913; (P) 0.9972; (R1) 1.0005; More...

Intraday bias in USD/CHF stays neutral at this point, as consolidation from 1.0146 is extending. Deeper retreat cannot be ruled out, but downside should be contained above 0.9799 support. On the upside, break of 1.0146 will resume larger up trend to 1.0283 projection level.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Sustained break of 1.0063 will target 100% projection of 0.9149 to 1.0063 from 0.9369 at 1.0283, and then 1.0342 (2016 high). For now, this will remain the favored case as long as 0.9779 support holds, even in case of deep pull back.

Daily Pivots: (S1) 147.28; (P) 148.19; (R1) 148.86; More...

Intraday bias in USD/JPY remains neutral and range trading continues. More consolidation would be seen for the near term. In case of another fall, downside should be contained by 38.2% retracement of 130.38 to 151.93 at 143.69 to bring rebound. Upside of rally attempt should be limited by 151.39 resistance.

In the bigger picture, up trend from 101.18 is still in progress, as part of the whole up trend from 75.56 (2011 low). 147.68 (1998 high) was already met and there is no clearly sign of topping yet. In any case, break of 140.33 support is needed to be the first sign of medium term topping. Otherwise, further rise is in favor to next target at 160.16 (1990 high).

Daily Pivots: (S1) 0.6327; (P) 0.6369; (R1) 0.6437; More...

AUD/USD's recovery form 0.6169 resumes after brief setback and intraday bias is back on the upside for 0.6539 resistance. Firm break there, and sustained trading above 55 day EMA (now at 0.6577), will raise the chance of medium term bottoming, and target 0.6680 support turned resistance next. On the downside, though, break of 0.6169 low will resume larger down trend.

In the bigger picture, down trend form 0.8006 (2021 high) is expected to continue as long as 0.6680 support turned resistance holds. Medium term momentum remains strong and retest of 0.5506 (2020 low) cannot be ruled out. But firm break of 0.6680 will be the first sign of reversal, and bring stronger rebound back to 0.7135 resistance.

Daily Pivots: (S1) 1.3556; (P) 1.3652; (R1) 1.3703; More...

USD/CAD gyrates lower today as consolidation from 1.3976 extends. Intraday bias remains neutral first and further rise is in favor as long as 1.3501 support holds. On the upside, firm break of 1.3976 will target 200% projection of 1.2005 to 1.2947 from 1.2401 at 1.4285. However, firm break of 1.3501 will bring deeper correction to 55 day EMA (now at 1.3429) and possibly below.

In the bigger picture, up trend from 1.2005 (2021 low) is still in progress. Based on current impulsive momentum, it could be resuming long term up trend from 0.9056 (2007 low). Whether it is or it isn't, retest of 1.4689 (2016 high) should be seen next. This will now remain the favored case as long as 1.3222 resistance turned support holds.

Daily Pivots: (S1) 0.9883; (P) 0.9905; (R1) 0.9937; More....

EUR/CHF's rise from 0.9470 is still in progress and intraday bias stays on the upside. Next target is 100% projection of 0.9407 to 0.9798 from 0.9641 at 1.0032. On the downside, break of 0.9818 minor support will turn intraday bias neutral and bring consolidations first. But retreat should contained above 0.9641 support to bring rebound.

In the bigger picture, considering bullish condition in daily MACD and the firm break of 55 day EMA, a medium term bottom should be in place at 0.9407. Further rally is expected as long as 0.9641 support holds, even as a corrective rebound. Next target 38.2% retracement of 1.1149 to 0.9407 at 1.0072. Reaction from there, as well as 55 week EMA (now at 1.0120) will reveal whether the trend is reversing.

Daily Pivots: (S1) 0.8648; (P) 0.8703; (R1) 0.8740; More...

Intraday bias in EUR/GBP remains neutral and further decline is expected with 0.8869 resistance intact. On the downside, break of 0.8577 will resume the fall from 0.9267, towards 0.8201/8388 support zone. However, firm break of 0.8869 will indicate that such decline has completed after defending 55 day EMA. Intraday bias will be back on the upside for retesting 0.9267 instead.

In the bigger picture, current development suggests that fall from 0.9267 is a down leg inside long term range pattern. Deeper fall could be seen towards 0.8201/8338 support zone. But strong support should be seen there to bring reversal.