European markets underwent another modestly negative session yesterday, weighed down by negativity from the other side of the Atlantic after US investors reacted negatively to a weak outlook from Microsoft.
The Nasdaq 100 led the way lower initially, pulling sharply away from its 200-day SMA, however a late rebound saw the index close well off the lows of the day after the Bank of Canada raised rates by 25bps, as well as signalling a rate pause for the next few meetings, as they assess the impact of multiple rate hikes on the Canadian economy.
It appears that markets reacted to this announcement on the basis that the Federal Reserve might look to do something similar when they meet next Wednesday, given that US markets turned around off their lows after the Canada rate decision was announced. This would be a huge assumption and could well end in tears next week. We certainly won't have to wait long to find out.
Having seen Microsoft disappoint on guidance, attention quickly shifted to the next set of earnings numbers, notably Tesla after the bell, where we saw a similar focus on margins and guidance.
As a result of yesterday's rebound in US markets, European markets look set to open higher this morning as we look ahead to today's US Q4 GDP.
Having started the first half of last year with two successive quarters of negative GDP growth, the US economy saw a return to positive GDP growth in Q3, of 3.2%, after a late upgrade from, 2.9% at the end of last year, with personal consumption coming in at 2.3%, a decent improvement on the 2% seen in Q2, and a significant improvement on the first iteration which only came in at 1.4%.
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The upward revision higher came about as a result of a rebound in consumer spending, as well as higher government spending.
As we look towards today's first iteration of Q4 GDP is seems quite likely that we'll see a slowdown from the strong performance in Q3. Expectations are for a modest slide to 2.5%, although with signs in recent months that consumer spending is slowing you might think that there could be considerable downside risks to that estimate. Despite these concerns the estimates for personal consumption are for an increase from 2.3% to 2.8%. Quarterly core PCE is expected to fall sharply to 3.9% from 4.7%.
Weekly jobless claims are also in focus after slipping to 190k last week and matching the lows seen last September. The slide in claims since the 241k peak in November suggests that the US labour market is still very tight, with little indication despite the recent announcements around job losses across the tech sector that the jobs market is deteriorating. That doesn't mean however that what we're starting to see in tech won't ripple out across the rest of the economy in due course. Expectations are for claims to edge higher to 205k.
EUR/USD – continues to range between the highs this week at 1.0927, and wider resistance at the 1.0950 area which is 50% retracement of the move from the 2021 highs to last year's lows at 0.9536. A move through 1.0950 opens up a move towards 1.1110. Support remains back at the 1.0780 area.
GBP/USD – rebounded from the 1.2260 area yesterday retesting 1.2400 in the process. We need to see a move through the 1.2450 area to target further gains. Above 1.2450 could see a move towards 1.2600. A move below 1.2250 could see a move towards 1.2170.
EUR/GBP – pulled back from the 0.8850 area yesterday with resistance at the previous highs at 0.8900. Still have support above the 50- and 100-day SMA which we saw last week at the 0.8720/30 area. Below 0.8720 targets 0.8680.
USD/JPY – slid back from trend line resistance from the October highs, which now sits at 131.00, earlier this week. Further declines could see a return to the lows at 127.20. We have interim support at the 128.20 area initially.
FTSE100 is expected to open 19 points higher at 7,764
DAX is expected to open 88 points higher at 15,169
CAC40 is expected to open 36 points higher at 7,080
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