Tech Companies Beat Forecasts While Investors Remain Skeptical About Interest Rate Projections | Daily Market Analysis

Key events:

• Australia - CPI (QoQ) (Q1)
• USA - Core Durable Goods Orders (MoM) (Mar)
• USA - Crude Oil Inventories

On Tuesday, there was some downward pressure on equity markets due to a variety of earnings reports, and investors are also waiting for more US data later in the week. Despite recent hawkishness in interest rate expectations, investors seem skeptical that this will come to fruition. They are keeping an eye out for any signs of weakness in the labor market or a decrease in inflationary pressures, which could occur in the next few months, leading to a scaling back of expectations once again.

During Tuesday's evening trade, US stock futures were up, as investors closely monitored fresh earnings results from major tech companies following a negative session among major benchmark averages. Microsoft (NASDAQ: MSFT) saw an 8.6% increase in extended deals after reporting Q3 EPS of $2.45, beating the expected $2.24, and revenue of $52.9 billion compared to the expected $51.12 billion. The company also posted a spike in revenue from its Intelligent Cloud business. Alphabet (NASDAQ: GOOGL) gained 1.3%, reporting a profit in its cloud business for the first time, with Q1 EPS coming in at $1.17 versus the expected $1.08 on revenues of $69.8 billion compared to the expected $68.87 billion.

In Wednesday's session, investors will keep closely monitoring a new round of earnings results from companies such as Meta Platforms Inc (NASDAQ: META) and Bank of America Corp (NYSE: BAC). Yesterday, the newly appointed Governor of the Bank of Japan, Kazuo Ueda, seemed to resist the idea of any modifications to the monetary policy before the meeting on Friday. Although no changes were anticipated from the central bank, there was a possibility of an adjustment to yield curve control due to the recent uptick in inflation, indicating a possible shift in direction under the new leadership. However, Ueda suggested that this was not something that would be taken into account at present, cautioning that if inflation or wages increase more than expected (although the former is still being driven by cost-push factors), a response such as rate hikes may be considered. Nonetheless, he emphasized that tightening now could lead to a dire situation in the future, effectively ruling out such consideration for this week.

Gold prices have remained relatively stable today, maintaining the consolidation pattern seen over the past week. While the anticipation of higher interest rates has led to a retreat from the record highs, traders do not seem convinced by these projections and are hesitant to abandon the all-time highs.

The price of gold has been fluctuating around the significant psychological level of $2,000, which has not been a decisive factor for a significant movement in either direction. Traders appear to be waiting for more US data to be released later in the week before making any significant decisions. In the meantime, the consolidation phase may persist.

The market started the week with a preference for European currencies, causing the US dollar to lose some ground. Short-term European bond prices have risen, reflecting the hawkish sentiment, while the entire US Treasury yield curve has slightly decreased.

Today, the focus will be on US data, specifically the Core Durable Goods Orders (MoM) (Mar) which is expected to have plateaued in March, and the Goods Trade Balance (Mar), which may have decreased.

Although a 25 basis points increase by the Fed is not currently being discussed for next week, the Fed's interest rate expectations for future policy moves are still uncertain and volatile. This leaves ample room for speculation regarding the future guidance from Fed Chair Jerome Powell. While data will play a role, recent developments in the US banking sector have come back into focus for investors. First Republic Bank's quarterly results reported a more significant drop in deposits than anticipated, leading to a new round of heavy selling in the stock after a prolonged period of calm.

This development is a crucial thread to follow today: if there is fresh instability in US banking stocks, dovish bets on the Fed may gain momentum, and despite its safe-haven status, the dollar may continue to lose ground, while European currencies, backed by hawkish central banks and without an excessively high-beta to sentiment, such as CHF, EUR, GBP, may benefit.