Spreadex Market Update
USD Bounces Back Ahead of FOMC As US Stocks Plunge on Earnings Misses
The US Dollar saw a fresh round of demand yesterday ahead of today’s headline FOMC meeting. The bank concludes its two-day meeting and is widely expected to hike rates by a further 75bps along with signaling a further hike to come in September. However, there is some chatter of the potential for a larger 100bps hike which, if seen, would no doubt drive USD higher here. Guidance for September will also be important here. If the Fed strikes any tone of caution or suggests room for a smaller hike, such as 50bps, this might fuel some USD unwinding.
Key Factors for Today
- Fed expected to hike by 75bps, small upside risks of a larger hike
- Risk sentiment weakened following US earnings misses and profit warnings yesterday
- European stocks hit by Russian gas supply fears
- GBP leading in FX, AUD muted following mixed CPI readings
- USD vulnerable into FOMC following further data weakness yesterday – durable goods on watch today
Coming Up
- USD US durable goods
- USD July FOMC
- USD US prelim wholesale inventories
US Tech Stocks Sink on Alphabet & Microsoft Earnings Miss – Spotify & Meta Due Today
Risk sentiment is looking a little precarious ahead of the FOMC later. Yesterday we saw heavy losses in US stocks as earnings from Google-owner Alphabet and Microsoft both undershot forecasts. Both companies cited USD strength as one of the key reasons behind the underperformance. US retailer Walmart added to the bearish tone yesterday as it issued a profit warning. The Nasdaq is now down over 4% from last week’s highs as tech stocks bear the brunt of the current sell-off. Later today we’ll see earnings from Meta Platforms, Spotify and Qualcomm, among others, with the potential for the Nasdaq to continue lower if we see further earnings misses.
European Stocks Hit by Fresh EU-Russia Gas Sanctions
European stocks have come under pressure following yesterday’s EU meeting which saw leaders agreeing to further curb Russian gas usage by 15%. With Gazprom’s 20% reduction in Nord stream flows to Germany commencing today there are fears of the impact the disruption will have on local markets. Earlier this week we heard the head of the ifo institute warning that Germany is on the brink of recession, which saw the Dax falling around 2%.
GBP Bounces Back in FX, AUD Flat Following Muted CPI
In FX, GBP has rebounded firmly today and is leading the G10 currencies over the European open following news that British dividends soared by over £32 billion in the second quarter. The Aussie is looking a little flat so far today following lacklustre CPI data overnight. The quarterly trimmed reading was in line with forecasts at 1.5% while the headline figure was seen at 1.8%, under 1.9% forecasts and down from the prior 2.1%.
US Data Misses Again
Ahead of the FOMC later, we’ll get the latest round of US durable goods numbers. Yesterday, CB consumer confidence was seen plunging to 95.7 from 97.3, underscoring the impact of the cost of living crisis and the fears of a slowdown. Traders will be keen to see how the Fed addresses these conditions at the FOMC later. Any additional caution over recession risks might well dilute USD upside in response to today’s tightening.
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