Morning offer: Technical tonic, recession review

A look at the day ahead in the US and global markets by Mike Dolan.

Rising hopes for US tech earnings in a tough week for corporate updates generally combined with the latest sign that Europe may have avoided a winter recession.

With Microsoft ( MSFT.O ) topping the U.S. companies report on Tuesday and Tesla ( TSLA.O ) due later this week, an impressive rally <С&П500> on Monday on Wall St was driven by a combination of buoyancy in the chip sector and confidence that the Federal Reserve will call for another reduction in the size of its interest rate hikes next week.

The Philadelphia SE Semiconductor Index (.SOX) jumped 5% on Monday as analysts upgraded the industry, making it its biggest one-day gain since November. The S&P 500 jumped 1.2% and futures held on to nearly all of those gains ahead of a busy Tuesday.

With Microsoft in mind, the focus will be on cutting costs and cutting jobs in the technology and digital space. Music streamer Spotify ( SPOT.N ) rose 2% on Monday as it joined a growing list of tech firms to announce layoffs, shedding 6% of its workforce.

Reports of Ford’s FN plan to cut 3,200 jobs in Europe indicate that job losses may not be limited to the technology sector.

But Microsoft shares also rallied on Monday after it announced another multibillion-dollar investment in OpenAI, deepening ties with the startup behind chatbot sensation ChatGPT.

Tesla jumped 7.7 percent ahead of its earnings on Wednesday as CEO Elon Musk took the stand in a fraud trial over tweets that said he supported a takeover of the electric automaker.

After a year of conflict in Ukraine and military tensions over Taiwan, US defense stocks outperforming in 2022 will also get attention on Tuesday as Lockheed Martin and Raitheon report fourth-quarter data.

More broadly, the latest earnings season is expected to show a decline of around 3% year-over-year for S&P500 companies overall – although the beats are slightly ahead of forecasts so far.

Although net declines to US earnings forecasts for 2023 remain dominant, with the expected growth rate halved again to just 2.4% since early November, the fact that it remains positive despite widespread fears of a recession is remarkable.

The big question here is whether it’s too rosy and whether the markets have yet to gauge the full-blown earnings recession.

But hopes for the fabled ‘soft landing’ remain – with the Fed likely to cut interest rate hikes to just 25 basis points, China’s economy reopening and a relatively warm winter and falling energy prices helping the eurozone stave off recession.

Eurozone business surveys for January showed a composite reading for both the manufacturing and services sectors back in expansion mode for the first time since June.

Whether this is good news for the markets or a signal that the European Central Bank will have to print even harder to bring double-digit inflation back to its target is debatable.

The equivalent US business sounds for this month will be released at a later date.

With Chinese markets closed for the New Year holiday, Japanese stocks outperformed as long-term lending rates eased further. European stocks were little changed.

The euro was slightly lower, but the dollar was broadly flat and US Treasury yields were slightly lighter.

Key events that could give direction to US markets later on Tuesday:

* January business surveys for the United States and from around the world. US Jan Richmond Fed Manufacturing Index, Philadelphia Non-Manufacturing Business Survey.

* The president of the European Central Bank, Christine Lagarde, and the head of the Dutch central bank, Klaus Knott, speak. Bank of England Executive Director of Financial Stability Strategy and Risk Sarah Briden speaks

* US company earnings: Microsoft, Texas Instruments, Verizon, Raitheon, Lockheed Martin, General Electric, Halliburton, Union Pacific, Johnson & Johnson, Danaher, 3M, Capital One, Invesco, Travelers, DR Horton, Paccar, F5, Intuitive Surgical.

Reuters Graphics
Reuters Graphics
Defense stocks rose in 2022, but fell after Kevin McCarthy’s election as House speaker

Written by Mike Dolan, edited by Ed Osmond <а хреф="маилто:мике.долан@тхомсонреутерс.цом" таргет="_бланк"> Twitter: @reutersMikeD

Our Standards: Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias in accordance with the principles of trust.

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