European markets look set for a lower open on Wednesday after a weak lead from the US, which saw the fourth lower close in a row for the Nasdaq, was exacerbated by disappointing tech company earnings overnight.
Apple shares were down 8% in afterhours trading, erasing a whopping $46bn in market cap after the iPhone-maker missed profit and revenue estimates for the first quarter. It was the first quarterly revenue decline in 13 years for Apple and gloomy guidance for next quarter suggests things aren’t about to improve anytime soon.
Apple’s had its critics from day-one who said that it was a one-trick pony and that iPhone sales couldn’t rise indefinitely, so after 13 years they’ve got it right. Investors will be looking for evidence that this is just a blip caused by tough yearly comparisons because of the launch of the iPhone 6 and that demand will pick up once the new iPhone 7 is released. Nonetheless, it does appear Apple has reached an inflexion point. Apple now needs a new ground-breaking product, like a car, to justify a higher price multiple.
Twitter released mixed results; missing on sales and guidance but beating the street on earnings and active users, nonetheless share dropped double-digits afterhours.
Trading all this week has been dominated by this evening’s Federal Reserve policy announcement and that is likely to continue through European trading on Wednesday.
Markets are predicting a 20% probability of a move in June. That seems a long way out of sync with a lot of the recent rhetoric from a number of Fed policymakers. If the Fed wants to keep June open as possibility to match the rhetoric of FOMC members, then markets may be underestimating the risks of a hawkish surprise.
Global economic risks and tight financial conditions were the main forces behind a delay in hiking rates but since the March meeting the S&P500 has moved back to within touching distance of its all-time highs, the US dollar has weakened and commodity prices have recovered.
If the Fed is to signal June as an option, without a press conference, the tone of the statement will have to turn hawkish. More dissenters voting for a rate rise would give the meeting a hawkish bias but the FOMC board looks short of maverick hawks. The two dynamics within the statement for the Fed to shift are the domestic economic assessment and international concerns. It seems probable the Fed could tone down its domestic economic assessment given a slowdown in the data but also ease up on its concern about overseas and financial risks.
UK preliminary GDP estimates are expected to show a slowdown in the first quarter to 0.4% down from 0.6%. A UK slowdown will inevitably be blamed on Brexit, but with US growth also slowing, the causes appear to be more international.
EURUSD – The euro has rebounded from 3-week lows over the past two day, regaining 1.13 on Tuesday. If this week closes above 1.1310 (last week’s open), it could mean bearish expectations from the bearish weekly engulfing candlestick are undone.
GBPUSD – Cable broke to an 11-week high and made it back above 1.46. There is considerable resistance from the February 4 peak but momentum from the broken down sloping trendline connecting the Feb and March 18 peaks could see it break.
EURGBP – Having taken out former resistance turned support at 0.7930, euro-sterling has extended losses beneath 0.78 and below its rising channel on the daily chart. The pair appears to be zeroing in on 0.77.
USDJPY – dollar-yen has formed two spinning top patterns on the daily candle chart after hitting a confluence of resistance from the 61.8% Fib of the decline since March 29, the 50 DMA and the 112 round figure.
Equity market calls
FTSE100: to open 6 points lower at 6,278
DAX: to open 2 points higher at 10,261
CAC40: to open 1 point lower at 4,532
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