The recent recovery in risk appetite has taken a blow in the past 12 hours. Meta (the new name for Facebook) posted results and an update that caused the shares of one of the biggest companies in the world to dive by over -20% overnight. A decline in active users, warning of losing users to rival platforms, and guiding Q1 revenue lower by -5%/-10% have caused a sharp reaction. This has reverberated through the tech sector and NASDAQ was around -2% overnight.
This has impacted risk appetite today, with USD finding support across major forex pairs, whilst commodities have also been weighed lower. This is the first test of character for the February risk rally. Will buyers still be tempted by intraday weakness?
It is a hectic day for calendar watchers. The Bank of England and European Central Bank will ensure GBP and EUR are in focus, whilst the services PMIs and ISM data will mean this could be a choppy trading day ahead.
Risk appetite turns slightly negative: The recent risk recovery has rolled over slightly this morning. NASDAQ declines overnight have triggered the turnaround. Higher risk equities are underperforming safe-havens. USD gaining across forex and is weighing on precious metals.
Yields flipping around near term: The US 10 year Treasury yield is higher and is supporting USD today [USD bouncing again]
NASDAQ lower on Facebook miss: A sharp sell-off on Meta (Facebook’s new name) in after-hours trading has dragged NASDAQ lower overnight. Meta closed -22%. This is weighing on risk appetite today[Risk negative]
Russia/Ukraine still tense: The US placing troops is “consistent” in response to Russian behavior (according to the US). Russia believes that moving the US redeployment is “destructive”. [Risk tentative]
BoE and ECB will be key: Expect elevated volatility on GBP and EUR trades today with both central banks updating monetary policy. [USD neutral]
- Eurozone final Services PMI (at 0900GMT). Final services PMI is expected to be unrevised from the flash reading at 51.2 (down from 53.1 final December), with the final Composite PMI at 52.4 (down from 53.3 final December).
- UK final Services PMI (at 0930GMT). UK services are expected to be unrevised at 53.3 (after 53.6 final December) with the final Composite at 53.4 (final December was 53.6).
- Bank of England interest rates (at 1200GMT). The consensus is forecasting a +25 basis points hike to 0.50% (after a +15bps hike to 0.25% in December).
- ECB interest rates (at 1245GMT). The consensus sees the deposit rate is forecast to be kept steady at -0.50%.
- US Weekly Jobless Claims (at 1330GMT). Weekly claims are forecast to fall to 245,000 (after 260,000 last week).
- ISM Services (at 1500GMT). The consensus is forecasting a decline in the ISM reading to 59.5 (from 62.0 in December).
MAJOR MARKETS OUTLOOK
Broad outlook: A turn to a mild risk negative bias today. USD has found support, commodities are lower and indices are reacting to losses on NASDAQ overnight.
Forex: USD is mildly higher across major forex. AUD and CAD are underperforming.
- EUR/USD has moderated its recovery but is still holding around 1.1300 having broken higher yesterday. Much will depend on the fallout from the ECB. Closing back under 1.1270 would be disappointing for the recovery, below 1.122. would be negative. Above 1.1370 opens the upside.
- GBP/USD has recovered well in recent sessions but is just stalling with the risk negative bias of major markets today and ahead of the BoE. Reaction to the BoE could be crucial for the recovery, but for now, we favor a continuation of the move higher and look to buy into supported weakness. Initial support 1.3490/1.3525. The next resistance is at 1.3660.
- AUD/USD recovery has stalled around the resistance band 0.7125/0.7180. The key will now be whether the market can hold above 0.7080 as a breach would open the lows again (at 0.6967). Yesterday’s high at 0.7159 will also be a gauge.
Commodities: Gold and silver are faltering in recovery. Oil continues to consolidate after the OPEC+ decision.
- Gold is pulling back in its near term recovery, with the momentum of the February moves higher now faltering. We remain neutral on gold between $1780/$1810, with a continued attraction towards $1800.
- Silver has faltered in its recovery and is back under $22.80 again. A near-term uptrend of the past few days is broken and a move under $22.35 would open support at $22.95/$22.10. A two-week downtrend is a resistance around $22.90 today, with price resistance at $23.04 now key.
- Brent Crude oil has failed to ignite the upside in the wake of OPEC+. The market subsequently remains stuck in a mini consolidation between $88.40 and $91.20. The risk is that the bulls tire of this and profit-taking sets in. Sub $88.40 opens $85.05. A close above $91.20 would open the upside once more. We are now neutral whilst this consolidation plays out.
Indices: A recovery on Wall Street is developing. European indices are also improving too.
- S&P 500 futures jagged lower on the NASDAQ fall late last night but is starting to find a sense of support today at 4526. However, the market needs to push above 4585 to continue the recovery now. There is good support initially around 4474/4514. Above 4602 re-opens the recovery potential.
- DAX has pulled back into the initial support band between 15,490/15,585. We see weakness as a chance to buy and holding above 15,535 (the initial spike lower last night) helps to stabilise the market. Resistance at 15,742 is now a barrier to continued recovery.
- FTSE 100 continues to trend higher in the recovery of the past 8 sessions. With positive momentum, we continue to look at weakness as a chance to buy. Initial support is at 7560 today, but a push back above 7621 re-opens the multi-year high of 7643 again.