Last week ended on a caution note after the first earnings from Big Tech companies were not bad, but not good enough to further boost an already impressive rally so far this year. The S&P500 closed the week just 0.7% higher, Nasdaq slipped 0.6%, while Dow Jones recorded its 10th straight week of gains, the longest in six years, hinting that the tech rally could be rotating toward other and more cyclical parts of the economy as well.

This week, the earnings season continues in full swing. 150 S&P500 companies are due to announce their second quarter earnings throughout this week. Among them we have Microsoft, which is pretty much the main responsible of this year’s tech rally thanks to its ChatGPT, Meta, Alphabet, Visa, GM, Ford, Intel, Coca-Cola and some energy giants including Exxon Mobil and Chevron.

On the economic calendar, we have a busy agenda this week as well. Today, we will be watching a series of flash PMI figures to get a sense of how economies around the world felt so far in July, then important central bank meetings will hit the fan from tomorrow. The early data shows that both manufacturing and services in Australia remained in the contraction zone, as Japan’s manufacturing PMI dropped to a 4-month low in July. German figures could also disappoint those watching the EZ numbers.
On the central banks front, the Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of Japan (BoJ) will meet this week, and the first two are expected to announce 25bp hike each to further tighten monetary conditions on both sides of the Atlantic.

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Stocks and bonds in the US fell yesterday. Stocks fell, sent down by a nearly 10% plunge in Tesla and more than a 8% dive in Netflix. Chip stocks fell as well around the world as TSM cut its annual outlook for revenue due to geopolitical tensions and weak global demand, and announced that its Arizona production plant will be delayed due to shortage of qualified labour that could build the plant.

Bonds, on the other hand, fell as well yesterday, as unemployment claims unexpectedly fell in the US. That strengthened the Federal Reserve (Fed) hawks’ hand yesterday on the reasoning that the US jobs market just won’t loosen.

The US dollar index is better bid after hitting the lowest levels since April earlier this week. The US dollar index is up from its recent lows but is still at the lowest levels seen this year, the EURUSD is down below the 1.12 mark, gold trades around the $1970, while the USDJPY tests the 140 mark after inflation in Japan came in higher than last month but softer than the expectations.

One place where the doves are also very persistent is Turkey. The Central Bank of Turkey (CBT) increased its policy rate by 250bp at yesterday’s policy meeting, versus 500bp hike expected by analysts. The USDTRY rallied by around 40% since May and risks remain comfortably tilted to the upside.

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Nasdaq futures are down this morning, by about 0.50% at the time of writing, after Tesla and Netflix fell post-earnings announcements. Goldman Sachs on the other hand was right warning investors that it was going to have a bad quarter, because it really had a bad one.

Overall, the S&P500 and Nasdaq both extended gains yesterday but we could see some consolidation and downside correction today. The US 2-year yield remains steady around 4.70/4.80% range, as Federal Reserve (Fed) officials are in their quiet period before the next policy meeting and can’t insist that there will be more rate hikes on horizon! The US dollar index consolidates. The dollar-yen tested the 140 resistance. Cable tipped a toe below the 1.29 mark yesterday after the latest inflation figures came in softer than expected yesterday morning, while the euro is stronger following a stronger-than-expected core CPI read.

In commodities, wheat futures rallied 8.5% on escalating tensions in the Black Sea, while heatwaves and peak temperatures encourage capital inflows toward ESG funds, A/C and generator makers.

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The rally in US stocks extended on the back of good bank earnings and AI. Microsoft jumped up to 6% to a fresh all-time-high yesterday as progress on the regulatory front regarding the acquisition of Activision Blizzard, and the news that its Microsoft 365 Copilot, based on OpenAI’s artificial intelligence, will be broadly available and cost $30 per month per user got investors rushing back to the stock and extend the November-to-date rally to 72%! The S&P500 and Nasdaq 100 to fresh highs since the first months of 2022.

On the data front, the softer-than-expected retail sales and production data from the US came to soften the Federal Reserve (Fed) hawks’ hands yesterday, and kept the US yields downbeat, which also helped boost stock valuations in parallel to earnings.

The US dollar index consolidates at the lowest levels since April 2022, The EURUSD bounced lower after hitting 1.1275 on dovish comments from European Central Bank (ECB) officials.

Across the Channel, softer-than-expected UK inflation sent Cable below 1.30.

Today, all eyes are on Goldman Sachs, Netflix and Tesla earnings.

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Soft Chinese figures hit energy, metals and European luxury stocks yesterday, while wheat futures jumped as Russia called off the grain deal in the Black Sea.

US stocks, however, extended rally and the US 2-year yield consolidated around 4.70% as investors started betting on when the Fed would cut the rates in the coming months.

Today, the Bank of America, Morgan Stanley and Lockheed Martin will be releasing their quarterly earnings. While BoFA and Morgan Stanley’s investment branches may have taken a hit, investors will be looking at how well these banks benefited from rising rates. Lockheed Martin on the other hand will undoubtedly continue outperforming as war and geopolitical tensions only keep rising and increasing the defense budgets around the world.

On the macro calendar, the US retail sales will be in focus today, as the resilience of the US consumer spending is another headache in the Fed’s fight against inflation, and the data could not surprise to the downside. According to Bank of America’s card data, spending in June was down by 0.2% ‘but not out’ and the official numbers are expected to show a slow improvement. A better-than-expected read could fuel inflation expectations and slowdown the US dollar’s selloff but unless we see seriously strong data, any improvement will unlikely to turn the bearish winds around in the medium run.

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