Week Ahead: Focus on Big Tech earnings

The first major Big Tech earnings hit the wires this week, after very mixed performance over the past week or so. Megacap tech stocks have dominated both the Nasdaq 100 and the benchmark S&P 500 index’s gains over the past year. But worries about the narrow breadth of market gains have been an enduring theme. We’re now seeing a rotation out of the “Magnificent Seven” stocks and the tech sector in general that has slightly surprised markets in its strength, with investors jumping into small cap companies and other previously unloved sectors. Falling inflation and a more broad-based earnings recovery has sparked the shift, along with a global sell-off in semiconductor companies.

That means there will be much focus on Google and Tesla’s results on Tuesday after the closing US bell. If the former beats estimates, it will mark the sixth straight quarter of exceeding EPS expectations. Ongoing tailwinds from robust advertising spending and growth in Google Cloud fuelled by AI advancements are expected to underpin the figures. Wall Street sees Tesla posting a year-over-year decline in earnings on higher revenues. Elon Musk’s EV maker has lost market share to rivals in its domestic market. The story is similar in other countries, especially in China where BYD are competing hard. The stock has rallied around 40% recently with support around $233 and resistance at the recent high at $271.

It’s a busy week of data too, with the US core PCE deflator being the key risk event. The data is expected to endorse the fully priced September Fed rate cut. We are likely to be looking at three decimal places too, as is the norm currently. The Bank of Canada is likely to cut rates again, with the latest Monetary Policy Report acting as a guide to how policymakers expect the economy to perform going forward.

Finally, on Sunday, President Biden announced his decision to step out of the US election race. This could be mildly negative for the dollar because the Democrats could then have a better chance of winning the Senate, which might then constrain a President Trump. That said, there does remain some confusion as to whether Trump 2.0 would be good or bad for the greenback. He isn’t happy with yen and yuan weakness, but tariffs and tax cuts are inflationary which support the buck.  

In Brief: major data releases of the week

Wednesday, 24 July 2024

–  Global PMIs: The European and UK services and manufacturing data is expected to see an uptick with services the main engine of growth. Politics may weigh in Europe, but the Labour landslide in the UK provides some certainty. EUR/USD and GBP/USD both broke to the upside last week but failed to hang onto the gains as the dollar steadied. 1.0948 and 1.3044 are the recent peaks respectively, and now key resistance.

–  Bank of Canada Meeting: Markets price in a strong chance of a back-to-back 25bps rate cut, though consensus is more divided. Inflation is easing towards target and the recent soft jobs report saw the unemployment rate tick up. The latest Monetary Policy Report will also be released. Near-term resistance in USD/CAD sits at 1.3750 with support around 1.3675.

Thursday, 25 July 2024

– US Q2 GDP: Consensus sees Q2 growth at 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.

Friday, 26 July 2024

– Tokyo CPI: Core CPI is forecast to tick one-tenth higher to 2.2%. This data acts as a forerunner to the national figures, which accelerated in June. Strong wage growth is the key driver.

– US Core PCE: The core PCE deflator is predicted to print at 0.2% m/m. Components of some of the PPI data that feed into the PCE were softer, even though the headline was hot. Money markets virtually fully price in a Fed September 25bps rate cut, though officials want to see more evidence that the current disinflation trend will endure.