Major US stock indices closed slightly lower on Tuesday following a turbulent session, as technology stocks led losses with Nasdaq down by 1.40%.
Alphabet, where revenues come mostly from Google ads, announced better-than-expected overall revenue in the first quarter as business was flourishing before Covid-19, and despite the significant decline in ads from consumer cyclical sectors such as travel and leisure later in the quarter. Yet, Alphabet’s own profit fell and the company’s decision to cut its marketing spending due to coronavirus-hit activity may have a blow effect on the tech industry, especially on its sub-contractors. Still the Alphabet shares rose 4% in the after-hours trading.
Looking at the bigger picture, even though the S&P500 successfully holds on to its gains since the beginning of the earnings announcements, this was mainly thanks to a couple of key growth stocks, including Amazon that continue boosting the index higher, while not all companies do as well compared to the benchmark index. In this sense, the leading market indices may not reflect the true nature of the market sentiment as earnings pour in, especially provided that FAANG stocks, which make up to 15% of the S&P500 index, tend to skew the index to the upside, as these stocks are perhaps not as badly hit by the coronavirus lockdown, in contrary. If we see headwinds in these stocks, the S&P500 could rapidly retreat.
Equities in Asia were mostly in the green, the ASX 200 rebounded past 1%, Shanghai’s Composite (+0.47%) and Hang Seng (+0.29%) recorded timid gains.
Activity in FTSE futures (+0.60%) hint at a bullish start in London.
Moving to the economic calendar, Australia printed its highest quarterly inflation in five years. Consumer prices in Australia rose 2.2% in the first quarter of 2020 as wildfires and early effects of coronavirus outbreak led to a significant jump in food prices. The AUDUSD pulled out the 100-day moving average (0.6518) as solid inflation tamed the expectations of a further easing from the Reserve Bank of Australia (RBA).
In the US, investors have their eyes fixated to the US first quarter GDP data today, which should throw some light on the extent of the economic damage caused by the coronavirus outbreak and the following business shutdowns. A consensus of analyst expectations pencil in a 4% contraction, but even this figure could fall short of expectations. More importantly, the next quarter will likely print an uglier number. But any disappointment should rather translate into a stronger US dollar, as the greenback is the most reliable safe haven asset of the moment, and a risk-off move across the market should benefit to it, and the US treasuries. Later today, the Federal Reserve (Fed) will announce its latest policy decision. The chances are we won’t see fireworks from the FOMC meeting today; the Fed will likely sit on its hands, as it has already slashed interest rates to near zero levels, and done all it could to maintain a smooth liquidity in the short-term money markets. And it seems like it has been working smoothly so far.
The US dollar index is a touch below the 100 mark, pointing at a good risk appetite.
The EURUSD saw solid support near the 1.08 mark, but should bump into a decent resistance near 1.09 before Thursday’s European Central Bank (ECB) meeting.
Cable is preparing to test the 1.25 offers on the back of a softening US dollar.
Yen and Swiss franc are stronger against a softening USD in the run up to the US growth data and the Fed decision.
Yet, the winds could change direction fast as the US walks in. Hence, gold is back above the $1700 per oz after having tested the $1690 support yesterday.
Else, the weekly US crude oil inventories data is expected to confirm an additional 10-million-barrel buildup last week, less than the previous weeks where the US stockpiles rose by 15-20 million barrels, but significantly more than what the oil market in a never-seen storage crisis could absorb. Rising global glut coupled with an anemic global demand should continue weighing on oil prices, even though the Chinese manufacturing PMI due Thursday, should confirm a pickup in activity in the world’s biggest factory and give a short sigh of relief to the depressed oil markets. Meanwhile, the S&P recommended its clients to move from the actual June to July contract immediately. WTI crude advanced past $14 a barrel in Asia, but top sellers are lying in ambush within the $15/$20 range, provided that there is no apparent good reason for the market to reverse its course in the short run.
