Wall Street undergoes wild 180

Wall Street reversed steep losses to end higher in a late rally. On Tuesday stocks are rising with Europe paring some of its losses, although Russia – Ukraine concerns and Fed fears remain.

• Europe rises but US stocks point lower again
• Fed kicks off 2-day FOMC meeting
• Microsoft Q4 earnings are due

European stocks have opened on the front foot after some brutal selling in the previous session. A combination of geopolitical fears, combined with fears over how dovish the Fed might go, sparked a risk off mood on Monday and sent global stocks shuddering lower yesterday. 

Whilst tensions had been building for a while at the Russia- Ukraine boarder, yesterday the penny dropped that this could boil over and the situation could deteriorate rapidly. Investors sold out of riskier assets such as stocks whilst favouring safe havens such as the Swiss Franc. 

The FTSE lost 2.6%. However, the DAX was the hardest hit, shedding around 3.8% of its value. Let’s not forget that Russia is Europe’s 5th largest trading partner, but also has a tight control of the incoming energy supply to Europe. Whilst today, European bourses are attempting to push higher, this is no turnaround Tuesday, the gains are minor compared to the steep losses yesterday.

Fed in focus

The US markets managed to close in higher territory yesterday after initial steep losses. However, the futures are once again pointing to a sea of red on the open as geopolitical and Fed fears combine once again. The Fed kicks off its two-day monetary policy meeting today and whilst the central bank is not expected to adjust monetary policy today, they are broadly expected to adopt a more hawkish stance.

The market is pricing in 4 or 5 hikes across the year. The Fed has guided for around 3 so far. However, the minutes to the latest Fed meeting suggest that the Fed could be considering a reduction in its balance sheet at the same time as hiking rates. 

A more hawkish Fed could raise concerns over the ability of the US economy to absorb such a steep path to policy normalistion. So far expectations of a more hawkish Fed have driven a strong rotation out of high growth tech, with the Nasdaq dropping over 12% so far this year. The big question is, will tech earnings be able to tame the selloff?

Microsoft Q4 earnings

Earnings season continues to ramp up with Q4 numbers due from big names such as American Express, General Electrics, Johnson and Johnson and Microsoft. Microsoft is due to report after announcing a $69 billion acquisition of Activation Blizzard just last week. Revenue growth is expected to slow to around 18% at $50.74 billion, with EPS rising to $2.32.

UK PSNB falls

In the FX markets the US dollar is holding steady as few are prepared to take on a large position ahead of tomorrow’s Fed interest rate announcement. The pound is managing to push higher versus both the US dollar and the euro after data revealed that the UK government borrowed less than expected. The British government borrowed £16.8 billion in December, which was below the £18.5 billion analysts had forecast thanks to a rise in tax receipts. Yet whilst borrowing falls, debt interest payments jumped sharply, reaching the fourth highest level on record for a December.