This week, a series of disappointing earnings and cautious guidance from the likes of Alphabet and Meta Platforms have helped to overshadow concerns about an escalation in the Middle East conflict between Israel and Hamas.
The combination of these two factors has also helped to undermine the previously resilient Nasdaq 100, sending it to its lowest level since May, although it did find support at its 200-day SMA.
With US markets starting to look a little more vulnerable to a broader correction and an increasingly uncertain geopolitical backdrop, there was little reason for investors to get overly enthusiastic about getting back into the market, instead moving into safe-haven plays such as gold, the Swiss franc and US Treasuries.
While the Nasdaq 100 has fallen through its previous lows from September, the S&P500 has looked even more vulnerable, sliding below its 200-day SMA and also to 5-month lows.
It’s also been another disappointing week for European markets, with the DAX on track for its 6th consecutive weekly decline, falling back to levels last seen in March, while the FTSE100 has also struggled for gains in recent days.
Against this backdrop, it’s somewhat surprising that the US economy continues to look so strong, and last night’s impressive Q3 results from Amazon served to underscore this fact, with shares rising in after-hours trading.
Q3 revenues came in well ahead of expectations at $143.1 billion, as did earnings, which came in at $0.94c per share, or $9.88 billion. This included a $1.2 billion gain from its stake in Rivian. There was a strong performance from online stores with net sales of $57.27 billion, while AWS saw sales of $23.06 billion, slightly below expectations of $23.2 billion. Operating margin was also better than expected at 7.8%.
Looking ahead to Q4, Amazon said it expects net sales of $160-167 billion, while the company said it will hire 250,000 full- and part-time employees to cover the Thanksgiving and Christmas holiday periods. Amazon also said it expects operating income to rise to between $7 billion and $11 billion.
Yesterday’s Q3 US GDP numbers were an impressive set of numbers, the best quarterly performance for the US economy since Q4 2021, with growth of 4.9%, a good portion of which was driven by personal consumption at 4%. The strength of these numbers showed the resilience of the U.S. economy, while on the other side of the ledger, core PCE inflation slowed from 3.7% to 2.4% over the quarter.
With such a strong economic backdrop, the Federal Reserve will be very reluctant to signal that it is done hiking when it meets next week. With such a strong set of numbers, it was somewhat surprising to see US Treasury yields fall as much as they did, but part of the reason for yesterday’s slide may be a sense that if the Fed were to hike again, they would wait until December to make sure that another hike is needed once more data is available.
Today’s core PCE inflation numbers may help to further inform this thought process on whether to raise rates another 25 basis points.
With the latest economic projections calling for a fed funds rate of 5.6% by the end of the year, and another spike in oil prices putting further upward pressure on prices and wages, the Fed will want to keep the markets thinking that another rate hike is on the table by the end of the year.
With the U.S. labor market resilient and wage growth looking sticky, a split appears to be opening up on the FOMC, despite recent data showing that the Fed’s core measure of inflation is easing.
The core PCE deflator inflation numbers showed a further easing of inflationary pressures in August, falling from 4.3% to 3.9%. This is welcome news for those worried that inflation in the US is proving to be sticky, as personal spending also slowed to 0.4% from 0.9%.
Today’s September numbers are expected to show a further slowdown in the core PCE deflator to 3.7%, while personal spending is expected to remain steady at 0.4%.
EUR/USD – Sliding back towards the 1.0520 area with next support at the recent lows at 1.0450. Resistance at 1.0700 and the 50-day SMA.
GBP/USD – Slipped below the 1.2100 level before rebounding slightly from the 1.2070 level. Major support remains at the October lows just above 1.2030. Below 1.2000, target 1.1800 area. Resistance at 1.2300.
EUR/GBP – Failed again yesterday at the 0.8740 level. A move below 0.8680 and the 200-day SMA targets the 0.8620 area.
USD/JPY – Pushed above previous highs at 150.16, setting a new high for the year and potentially opening up a move towards 152.20. Support at last week’s lows at 148.75.
FTSE100 is expected to open 12 points higher at 7,366.
DAX is expected to open 15 points higher at 14,746.
CAC40 is expected to open 16 points higher at 6,905.
