Markets Are Mixed Due to Dissonant Data and Earnings | Daily Market Analysis

Key events:      

• Australia – CPI (QoQ) (Q4)
• Canada – BoC Monetary Policy Report     
• Canada – BoC Interest Rate Decision
• USA – Crude Oil Inventories
• Canada – BOC Press Conference     

The S&P 500 fluctuated around the 4,000 mark, with no major moves up or down, as investors disagreed on mixed earnings reports and mixed economic data.

The U.S. services and manufacturing PMIs for January were better than expected, but both remain in the contraction zone. While the Richmond Manufacturing PMI fell to -11, well below analysts' expectations of -5.

Overall, the data confirmed some slowdown in U.S. economic activity but did not indicate a free fall.

At the same time, U.S. 2-year yields fell for the second straight session as soft data kept Federal Reserve (Fed) doves in check.

But at current levels, the swap market anticipates a rate hike of about 48 bps over the next two FOMC meetings. This means that current swap market activity provides about an 8% chance that there will be no rate hike at all after the Fed's February meeting.

And if that's what's keeping the S&P 500 rate around the 4,000 mark, it's nothing short of worrisome.

In today's session, the S&P 500 may or may not get support from Microsoft, as the company announced better-than-expected results yesterday after the market closed, but the results were not exactly rosy. Revenues - which grew at the slowest pace since 2016 - fell slightly short of expectations, but earnings beat forecasts. The Intelligent Cloud segment grew 18%, and Azure services grew 31% - slower than last quarter, but better than expected, with the prospect of further growth from the ChatGPT deal. Shares were up 5% in after-hours trading, but the gains were mostly recouped.

Today is Tesla's turn to report its financial results after the market closes, and no one can tell you with certainty what will happen to the stock price when the results are released.

Tesla is doing very well, with the company announcing record deliveries of cars quarter after quarter, but those record deliveries have not been enough to meet market expectations for the last three quarters. And expectations, unfortunately, shape the market price, and their absence is not good for the stock price.

As for currencies, the U.S. dollar remains under pressure from weak data and worrisome easing of Fed expectations, while the Euro got the boost we had hoped for from yesterday's PMI data.

The EUR/USD is testing the 1.09 level again this morning. And the gradually widening divergence between the hawkish expectations of the European Central Bank (ECB) and the dovish expectations of the Fed is still encouraging further gains. But be careful, the pair is about to enter the overbought zone, which might slow the rally to the 1.10 target.

In Canada, the Bank of Canada (BoC) is preparing to announce its latest 25 basis point rate hike. The USD/CAD is betting on breaking out support at 1.3350, but crude oil is not helping as the price of a barrel of US oil continues to bang its head against a solid wall of $82 pence, 100-DMA, with no way to break it up.