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Bank of Canada on deck as Microsoft and Alphabet beat expectations

European markets had an altogether a more positive session yesterday despite some poor manufacturing and services PMI numbers from France, Germany, and the UK.

The continued absence of a ground invasion into Gaza by Israeli forces, perhaps to allow more time for further hostage releases, appears to be prompting a modest rebound in risk, which in turn is helping to pull oil prices off their recent highs, with both Brent and WTI falling to a one week low, as they posted their 3rd successive day of losses.    

The US, on the other hand, appeared to paint an altogether more resilient tone on the economic data front, with US markets getting a lift and a strong finish driven by some strong earnings numbers, ahead of widely anticipated numbers from Microsoft and Google owner Alphabet, which came out after the close.

Both sets of numbers were impressive, although judging by the market reaction the market had a somewhat mixed view, sending Alphabet lower and Microsoft higher in aftermarket trading, even though both beat expectations on revenues and profits.

Microsoft saw Q1 revenue of $56.5bn, a rise of 13%, comfortably above forecasts of $54.5bn, with revenue growth in Azure and other services rising 29%, above forecasts of 25% to 26%. Profits came in at $2.99, an increase of 27%. Revenue in personal computing rose 3% to $13.7bn, helped by an increase in Windows revenue, of 5%, while Xbox content and services rose 13%, although devices proved to be a drag with a decline of 22%.

While the market appeared to like what Microsoft had to say the reaction to Alphabet was different with the shares falling despite revenues seeing an 11% increase to $76.69bn, and profits of $1.55c a share or $19.69bn.

On the break down there was only one area of weakness, and that was in cloud revenue which came in at $8.4bn, slightly below forecasts of $8.6bn, even though it was still well above last years $6.87bn.

On all other measures we saw comfortable beats, with YouTube seeing $7.95bn, Advertising $59.65bn, and other revenue $8.34bn, taking total services to $67.99bn.

Social media company Snap may have also given a taste of Meta’s results later today with a solid set of Q3 numbers, posting a surprise profit of 2c a share as well as beating on revenues sending the shares up over 20% after hours, although the gains didn't last very long.

This resilience isn’t expected to feed through into today’s European open, which is expected to be a mixed one, with the focus today set to be on the latest German IFO business survey for October and the Bank of Canada rate decision.

Having seen yesterday’s disappointing October PMIs, the German economy appears to be very much in the doldrums weighed down by high food and fuel prices and lower consumer confidence. The latest IFO Business climate isn’t expected to show much of an improvement on the September numbers, which slipped to a 10-month low of 85.7.     

Today’s Bank of Canada rate meeting is expected to deliver an unchanged decision, keeping rates steady at 5% while keeping the options open for further rate hikes. The most recent payrolls report showed that employment growth remained strong in September, while the unemployment rate remained unchanged at 5.5%, while wages growth edged higher to 5.3%, the highest since February.

All told Bank of Canada Tiff Macklem is unlikely to want to deliver any sort of message that could be considered dovish against that sort of backdrop. The central bank will also set out its latest set of quarterly monetary policy projections.  

EUR/USD – failed to overcome the 50-day SMA at the 1.0700 area, slipping back below the 1.0600 area. The main support remains at the October lows at 1.0450, as well as the 1.0400 area which is 50% retracement of the 0.9535/1.1275 up move. 

GBP/USD – broke above the 1.2200 area, spilling over towards the 1.2300 area before finding resistance at the trend line from the July highs and slipping back. Support remains at 1.2100, while a move through 1.2300 is needed to push up to the 200-day SMA at 1.2400.

EUR/GBP – slipped to support at the 0.8680 area before rebounding. Resistance at the highs this week at 0.8740. A move below 0.8680 and the 200-day SMA targets the 0.8620 area.

USD/JPY – barrier at the previous highs at 150.16 continues to hold. A break of 150.30 targeting a move towards 152.20. Support at the lows last week at 148.75.

 


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