Headlines

* BoJ policymakers divided on wages, inflation outlook, opinion shows

* US economic growth set to have slowed in fourth quarter of 2022

* Tesla seeks to boost output quickly as profit beat estimates

* Dollar nears eight-month low ahead of central bank meetings

FX: USD continued to slide with the DXY trading near to cycle lows at 101.57.  Treasury yields fell and traded in a narrow range. The 10-year Treasury yield dropped below the 3.5% level to 3.44%. Eyes are on US data including today’s Q4 GDP and Friday’s Core PCE.

EUR closed higher above 1.09. ECB officials continued to echo the need to raise rates further. GBP fell below 1.23 on money markets pricing in rate cuts at the end of this year. But buyers stepped in and the major traded above 1.24 later in the session.  USD/JPY looks to be rolling over having touched the topside of the long-term bear channel. Narrowing US-Japan yield differentials have pushed the pair down towards 129 after recent highs above 131.

AUD is close to August highs at 0.7136. USD/CAD bounced from short-term trendline support. The BoC hiked rates by 25bps as expected. But it became the first major central bank to signal a pause. This was a “conditional” pause as inflation remained high and broad-based. Policymakers are now keen to assess the impact on the economy of higher interest rates.

Stocks: US equities ended a mixed bag for a second day in a row after a choppy session. Wall Street’s blue-chip S&P 500 dipped 0.02%. The Dow closed 0.03% higher after dropping more than 400 points earlier in the day. The tech-heavy Nasdaq fell 0.27% after falling over 1%. Microsoft shares shed 3% in early trading before paring back most of its losses to finish 0.6% lower. Tesla topped earnings expectations with its release after the close.

Asian stocks were also mixed with holiday closures and the flat handover from the US. The Nikkei was lacklustre amid a firmer yen and upside in yields. The Hang Seng outperformed as it returned from holidays.

US equity futures are pointing to a positive open. Futures in Europe are pointing to a solid open too (+0.7%). The cash market closed marginally lower yesterday.

Gold continued to post fresh highs; levels not seen since April 2022. Bugs took the metal to $1949 earlier this morning. The softer dollar and Treasury yields are helping ahead of the Fed meeting next week.

Day Ahead – US GDP up next after BoC “dovish” hike

The Bank of Canada’s pause signal has left the markets hoping for a similar turn by the FOMC next Wednesday. Today’s US GDP is a lagging indicator. But the data will be used to gauge if the recent market shift towards a soft landing can continue to hold.

Consensus expected decent growth of 2.7% y/y. But this is a deceleration from last quarter’s 3.2% y/y. Last week’s soft retail sales signalled a consumer pullback. The jury is still out then if we are to see more of a deeper slowdown. But persistent labour market strength also questions that theme. Initial jobless claims data is also released today. Last week’s figure dipped below 200k indicating a still-tight job market.

Chart of the Day – Tesla up but still battered

Tesla reported after the US close. Earnings beat with EPS hitting $1.19 versus $1.12 expected. Record revenues marginally topped estimates and the stock is up solidly in the grey market. Gross margins (25.1%) were marginally below expected (26.6%). This was a key metric after the price cuts announced by the EV-maker. Tesla said it is accelerating cost-cutting measures. It is also looking to kickstart production of its cybertruck.

The stock has surged 43% since the January 6 low at $101.81. The company lost about $700 billion in market value last year (-73%). But price cuts in some of its models early in the new year to jump-start demand have been cheered by shareholders. Initial resistance comes at the 50-day SMA at $152.67. Prices haven’t risen above this since September last year. The November low sits at $166.19.