Market Insights Today: Positive surprise from US and EU PMIs; Tesla earnings ahead – 25 January 2023

What’s happening in markets?

Equity markets lose steam and trade cautiously ahead of the Fed’s preferred inflation gauge

US equity markets were a bit dull on Tuesday investors weighing up mostly stronger than expected Microsoft earnings results, vs a weaker than expected earnings from chipmaker giant, Texas Instruments. The S&P500 (US500.I) fell 0.1% but closed above it 200-day average for the second day (a sign there are more bulls in the market than bear), while the Nasdaq 100 (NAS100.I) lost 0.2%. Still markets are waiting for the next major catalysts; Tesla’s results on Wednesday, then later in the week, the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) price index for December; to also gauge if the Nasdaq’s rally of 11% from its low can be sustained, especially as the PE for the Nasdaq is about 54.6 times earnings; meaning tech stocks are still quite expensive compared to their averages. The risk is if Core PCE doesn’t fall as expected from 4.7% QoQ to 3.9%, then we could see a selloff in equity markets, while the US dollar would be bought. However, the S&P500 is seemingly bullish for now, until the next tests (some of which we mentioned), click for an in depth Technical Analysis on what the next levels could be for the S&P500.

Mixed Microsoft (MSFT) result has shareholders a relieved as cloud sales rise more than forecast; a sign the business could stand tall amid the murky year ahead

After hours Microsoft (MSFT) shares gained 4.3% with investors relieved its revenue in constant currency rose 7% in the quarter, versus the 6.59% estimate. Microsoft’s closely watched Azure cloud-computing business, sales gained 38%, compared with predictions for a 37% increase, excluding the impact of currency fluctuations. This underscores Azure’s ability to help drive the company, even as sales of Windows software to PC makers plummeted amid a slumping market. Adjusted earnings per share came in at $2.32, slightly better than the $2.30  estimate, thanks to the cost cutting. Capital expenditure was $6.27 billion, less than Bloomberg estimated ($6.63 billion), while revenue slightly missed expectations hitting $52.75 billion vs the $52.93 billion estimate.

FX: AUDUSD boosted by hotter-than-expected CPI

A mixed day for the US dollar on Tuesday as it broadly ended the day unchanged after the tech issues with the US equity open and broadly firmer US PMIs. The move lower in yields however dragged on the USD, and Japanese yen was the biggest gainer on the G10 board. USDJPY reversed from 131 back to 130 levels at US close but seeing upward pressure again this morning in Asia. NZDUSD hovers around key resistance level of 0.65 as NZ 4Q CPI came in stronger than expected at 7.2% vs estimate of 7.1%, while Chris Hipkins was sworn in as the 41st prime minister. AUDUSD hit fresh highs of 0.7080 after the Australia CPI release came in above expectations at 7.8% YoY and 1.9% QoQ (exp 7.6% YoY and 1.6% QoQ). Meanwhile, EURUSD stays close to 1.0900 with stronger than expected Eurozone PMIs and mixed ECB speakers underpinning. Villeroy suggested the ECB will reach peak rates by the summer, although Simkus said this may be unlikely but the ECB should continue with 50bp hikes. Nagel said the ECB is not done on inflation that remains far too high, and Panetta said the ECB should not commit to any specific policy move beyond February.

Crude oil (CLG3 & LCOH3) prices drop

Oil prices dropped on Tuesday amid risk off tone broadly across markets amid a mixed set of earnings results. WTI prices fell 1.8% below $81/barrel while Brent was down 2.3% to sub-$86.50. OPEC+ are expected to keep oil production unchanged when they meet next week as they await clarity on Chinese demand and the impact of EU’s ban on Russian supply (from Feb 5). Meanwhile, API inventories suggested a still-tight oil market with US crude inventories rising 3.38mm barrels last week and focus will be on the official data due today. Gasoline inventories rose by 620,000 barrels after last week’s API data showed the fuel inventories rising by 2.8 million barrels last week. Distillates fell 1.929 million barrels after falling by 1.8 million bpd in the week prior.

Metals see red on profit taking, while gold nudges up on the cusp of a bull market

Copper declined 0.2% with investors booking profits after the copper prices have gained 32% from its low. Traders bought into Wheat, lifting Wheat up 2% as its trades at year-lows. While Gold nudged up 0.3% taking its rally off its low to 19.5%, meaning that gold is on the cusp of a bull market.

What to consider?