Concerns over the economic outlook weighed on European markets yesterday, with broad weakness in basic resources and the energy sector, which is being caused by weakness in iron ore and copper prices, after Chinese authorities warned over high prices.
Oil prices also slid sharply, as weaker than expected US economic data sparked concerns over a slowdown in demand as sticky core inflation starts to weigh on the longer term outlook, as well as consumer confidence.
Financials also had a difficult day after Spanish bank Santander and UBS in Switzerland both set aside larger than expected provisions in their latest Q1 numbers. Santander in particular pointed to concerns about the outlook for the mortgage market. While rising interest rates are good for net interest margins, the other side of that is the potential for higher borrower distress.
US markets also had a disappointing session, with losses accelerating after European markets had closed, the Nasdaq 100 posting its worst session in over a month, while yields slid as money moved into the traditional haven plays of government bonds, and the US dollar.
The worst performer on the S&P500 was First Republic Bank after reporting that deposits had fallen by $72bn in Q1, raising concerns over its long term viability as an institution, as it looks to restructure its business, which in turn weighed on the wider banking sector.
Both Microsoft and Alphabet also finished the session lower ahead of their results which were released after the bell.
The numbers for both came in ahead of expectations, giving a lift to US markets, and the share prices of both after hours, although its unlikely to be enough to prompt an uplift for European markets which are expected to open lower later this morning, after yesterday’s weak US finish.
Microsoft reported Q3 revenues of $52.9bn, above estimates of $51bn, with commercial cloud revenue coming in at $28.5bn. Profits also came in ahead of expectations at $18.3bn or $2.45c a share.
All business areas beat expectations, intelligent cloud revenue came in at $22.1bn, a rise of 16%, and subscription products revenues rose 11% to $17.5bn. Personal computing revenue was the only area of decline, falling 9% to $13.3bn, it still comfortably came in above consensus, although Windows OEM and devices revenue saw a sharp decrease of 28% and 30% respectively.
Google owner Alphabet also reported a solid set of Q1 results, driven by an uptick in advertising and increased demand for its cloud services. Total revenues of $69.8bn, and profits of $15.05bn, a modest decline from the same quarter last year, but above forecasts of $1.07c at $1.17c a share.
Cloud services saw an increase in revenue to $7.45bn, which helped offset modest declines in advertising and YouTube revenues. YouTube revenue fell 2.6% to $6.69bn, while advertising came in at $54.55bn.
The company also announced a $70bn share buyback, while also announcing it was taking a $2bn charge in respect of severance costs for the 12,000 job losses reported earlier this year, as well as another $564bn on top in relation to reduced office space.
Attention will now shift towards today's numbers from Facebook owner Meta Platforms after their more than 70% share price rebound so far year to date.
EUR/USD – failed just shy of the previous peaks at 1.1075 yesterday, slipping back below 1.1000, raising the prospect of a return to the 1.0940 area. Below 1.0940 retargets the 1.0870 level. A push up through the previous peaks at 1.1075 opens up the 1.1120 area.
GBP/USD – failed at the 1.2500 area again, slipping back with support currently at the 1.2340 area. This needs to hold to keep the bias for a move towards 1.2630 intact, or risk a move towards 1.2270.
EUR/GBP – failed at the 0.8875 area yesterday, slipping back towards the 0.8830/40 area. Below 0.8820 targets trend line support from the August lows at 0.8770. A break above the 0.8870 area suggests a retest the March peaks of 0.8925.
USD/JPY – remains under pressure while below the recent peaks at 135.20. Above 135.20 retargets the 200-day SMA at 137.00. Below 133.30 argues for a return to the 132.00 area.