Big Tech hit as markets evaluate earnings, yen gains

Headlines

* Nasdaq and S&P500 sink after tech earnings disappoint

* USD/JPY hits lowest level since the start of May in yen carry trade “purge”

* BoC grows more confident in inflation path, paving way for September move

* Gold sells off ahead of key US data including GDP and PCE

FX: USD made back some of its losses late in the day, after dipping to 104.12. Flash PMIs were mixed with eyes on Friday’s PCE data and ahead of the FOMC next week. Markets currently price in around 62bps of easing this year, with a nailed-on first rate cut in September.

EUR fell for a second day, nearing its 200-day SMA at 1.0816. Worse than forecast PMI data for July weighed, with the region’s composite number dropping to 50.1 from 50.9. Below or above the key 50 mark denotes contraction or expansion.

GBP printed a doji candle pointing to some indecision. The PMIs were solid suggesting steady, if uninspiring growth. August rate cut odds remain just below a coin flip.

USD/JPY was centre of attention again with the major plunging to a low of 153.10. We have support at a long-term Fib level at 153.66. Below that is the previous intervention level around 152. Growing interest in next week’s BoJ meeting has added to the yen short squeeze. Odds on a rate hike have jumped to above 60% from 40% on Monday.

AUD fell again for an eight straight day and below the midpoint of the 2024 decline at 0.6616. The 200-day SMA could offer support at 0.6584. The kiwi also underperformed, sliding for a fifth day in a row. That streak was last seen in January. USD/CAD pushed higher for a sixth consecutive day above 1.38. The BoC cut rates as expected and signalled more are likely to come. The policy gap with the US of 100bps is now at its widest since 2007. That said, Governor Macklem sounded fairly relaxed about this.

US Stocks: US markets were hit hard as markets digested mixed earnings from Tesla and Alphabet. The benchmark S&P 500 closed 2.32% lower at 5,427, touching 5-week lows. That was its biggest one-day point loss since September 2022. The tech dominated Nasdaq 100 finished down 3.65% at 19,032. That marked its worst day of 2024. The Dow Jones finished 1.25% off at 39,53, shedding over 500 points. Tech was by far the biggest loser with utilities leading sector gains. Tesla plunged over 12%, the worst drop on the Nasdaq and second worst on the S&P 500. Lower vehicle prices, restructuring charges and delays in the Robotaxi project disappointed investors. Alphabet shares lost over 5%, having posted better than expected results. But Google’s parent flagged decelerating advertising trends, plus tougher comparisons in the second half of the year.

Asian stock futures are in the red. Asian stocks were mixed clouded by Big Tech earnings and ongoing China geopolitical concerns. The ASX 200 saw energy lag on falling crude prices while tech gained. The Nikkei 225 pared initial gains on potential indecision at the BoJ and the stronger yen. The Hang Seng and Shanghai Composite were muted with the mainland still underperforming.

Gold popped up to a high of $2432 before finishing in the red. Yields moved higher but the dollar was less certain. Bullion prices remain relatively bid on the certainty of Fed policy easing in September.

Day Ahead – US GDP

Consensus sees US growth for the second quarter strengthening to 1.8%, better than the tepid 1.4% in the prior period. Consumer spending picked up through the quarter, plus rising inventories should boost activity.   But domestic demand may begin to soften as investment growth moderates. Labour market slack is also becoming more apparent, which could create some uncertainty over the outlook.

Fed officials have also been warning on this, though they are now in the blackout period ahead of next week’s FOMC meeting. Rates setters want to see growth remain closer to trend, meaning a soft landing is achievable. Other weak data warns of a downside bias to the dollar and rates.

Chart of the Day – Nasdaq struggling into and during earnings

We’ve talked at length in our weekly webinar about the narrow breadth of the market. The tech titans (“Mag 7”) have led gains for many months, but are now getting sold as traders rotate into less favoured sectors and small caps, as well as simply taking money off the table into summer liqudity. This can sometimes excerbate price action with thinner volumes.

Seasonal challenges mount for stocks as we head into late July where the mid-year slump in risk assets typically starts to bite the most. Equity markets typically run relatively soft through August and especially September before rallying strongly into the final quarter of the year. Nasdaq prices slid through a Fib level at 19,271 and the 50-day SMA at 19,406. Next support is the 50% retracement of the April low to July high at 18,832. Markets will be wary of more Big Tech earnings next week from Microsoft on Tuesday, Meta on Wednesday and Amazon and Apple on Thursday, all after the US closing bell.