Stocks fall with chipmakers, gold hits record high

* US dollar softer on euro strength, ahead of inflation and jobs data

* Meta misses on user growth, Microsoft disappoints on revenue guidance

* US economy grows at solid 2.8% pace in Q3 but misses estimates

* BoJ to stand pat, eurozone inflation set to rise but remain below ECB target

FX: USD turned lower as US and eurozone GDP showed contrasting pictures. Q3 US growth printed one-tenth lower than expected at 2.8%, while eurozone GDP grew more than forecast (0.4% vs 0.2% expected). Treasury yields dipped close to the 21-day SMA before moving off their lows for the day. US Core PCE, the Fed’s favoured inflation gauge, is next up on the calendar.  

EUR jumped higher with a third straight day of gains. Buyers hope a base has been formed around 1.0780. The 21-day SMA sits at 1.0889. As well as GDP being better than expected, German inflation came in higher, setting back bets on a 50-bps ECB December rate cut. There’s now around 31bps versus 35bps at the start of Wednesday.

GBP was the major underperformer as it tried to claw back losses during the budget. The anticipated mix of tax hikes and increased borrowing to invest in key policy areas came to pass. It’s relatively growth-positive, enhancing fiscal policy which could see the BoE go slower on cutting rates. The 100-day SMA resides at 1.2973.

USD/JPY printed another inside day, the third in a row, as prices consolidate tightly just below recent 12-week highs. Focus is on today’s BoJ meeting.

AUD outperformed all of its major peers apart from the euro. Lower than expected CPI data is not expected to move the RBA rate cut dial too much. Next week’s meeting is still likely to highlight the bank’s relative hawkishness.  USD/CAD moved north once again to a new cycle peak at 1.3940, just shy of the August spike high is 1.3946. The loonie continues to be sold on the prospect of more BoC easing relative to the Fed possibly dragging its feet on more policy easing.

US Stocks closed in the red. The S&P 500 settled 0.33% lower at 5,814. The tech-heavy Nasdaq 100 lost 0.79% to finish at 20,388. The Dow finished down 0.22% at 42,142. Tech underperformed with semiconductors weak on the back of AMD’s disappointing earnings offset by strong Google results, which closed up 2.9%. A huge miss in Eli-Lilly earnings, with weight loss drugs missing estimates, sent the stock down by over 6% by session end. Meta missed on user growth and warned of 2025 jump in AI spending. That pushed the stock down over 3% after hours. Microsoft slipped more than 3.6% in extended trading on disappointing revenue guidance even as Azure topped estimates. Apple reports after today’s US close with service revenue and guidance in focus. The stock price is near all-time highs which sets a high bar for more upside surprises. Amazon is likely to rely on growth in AWS and ad sales, though high short-term AI costs may put pressure on profitability.

Asian stocks: Futures are mixed. Asian stocks were mostly lower after a mixed Wall Street handover and multiple risk events. The ASX 200 was subdued on softness in the consumer sector. The Nikkei 225 moved higher and above the 39,000 level on expectations the BoJ would stand pat on any rate hikes soon. The Hang Seng and Shanghai Composite were both lower on tech ad auto weakness amid trade related headwinds. The EU imposed more tariffs on subsidised EVs from China.  

Gold continued ever higher, up to a top at $2790. As we have said previously, the focus remains on the US election and especially the prospect of a Trump 2.0. Greater policy disruption, trade tariffs, and increased geopolitical risks, plus questions about debt sustainability are the big current drivers.  

Day Ahead – BoJ Meeting, EZ CPI and US Core PCE

It’s a busy day with some serious risk events on the calendar. That said, the BoJ meeting could be relatively muted with eyes on the political situation after the weekend election caused much uncertainty. That means the BoJ should preach a cautious tone, retaining their core message around a lack of urgency on policy normalisation, whilst monitoring inflation. Fresh bank forecasts around inflation and growth will grab the attention. The latter for 2024 is expected to be revised down, while inflation moved up.

Expectations are for the eurozone headline inflation rate to rise to 1.9% from 1.7% y/y in October, but the ECB is already forecasting a pickup in the coming months due to rising energy prices. Core is seen steady at 2.7% and services inflation around 4%. Inflation is seen hitting the ECB’s 2% target in Q1 ‘25. We note that rate setters have seemingly shifted to a focus on growth over inflation.

Finally, US core PCE is forecast to print at 0.3%, having been rounded up from possibly 0.25%. Core CPI in September rose 0.3% m/m and the PPI print points to a similar reading for this price gauge. This will be the last piece of inflation data the Fed will see before next week’s meeting, so any surprises could impact officials’ views at the margin.

Chart of the Day – USD/JPY steadies in consolidation mode

Where US Treasury yields go, so to goes USD/JPY. The correlation between the proxy for global borrowing costs and the currency major remains high. And as yields have shot higher, some 70bps in just six weeks, USD/JPY has jumped from a low of 139.57 in mid-September to the current price abvoe 153. US Fed rate cut expectations have been pared, while the Trump trade (tarrifs, tax cuts and deregulation) has boosted the greenback too. The political uncertainty in Japan hasn’t helped the yen, with the BoJ likely to be more patient with policy normalisation.

Prices are nearing overbought territory but the couple of inside days just looks like a bullish consolidation pattern. This week’s high is at 153.86, with a minor Fib retracement level of the July to September move above 157. The 61.8% level of that move sits at 153.40 with the midway point at 150.76.