Headlines

*Japanese inflation picks up speed to keep pressure on Bank of Japan

*Euro set for best week since May after ECB opts for bigger 50bp hike

*Meta and Alphabet knocked down after Snap’s “awful” results

*APAC largely higher though Europe points slightly lower, PMIs ahead

US equities continued higher for a third day, fuelled by earnings from Tesla. The Nasdaq led the way again, closing 1.44% higher. The broader S&P500 closed near its highs just below 4,000. Asian stocks are on course for their best week in months. The Nikkei 225 rose for a seventh successive day, seeing its best week since March. Futures are indicating a softer open in the US and Europe.

USD weakened against all of its major peers. But support held on the DXY around 106.40. EUR remained choppy around 1.02 stuck in a 120-point range. Yesterday’s intraday top was 1.0278. GBP closed higher eventually, after dropping below key support earlier in the session. JPY made the strongest gains among the majors. It posted an intraday low at 137.29 and this morning at 137.02 before finding a bid. AUD and NZD are giving back some gains today after advancing yesterday.

Market Thoughts – Europe’s mixed day

Yesterday began with some relief as gas through Nord Stream 1 started flowing again. However, this was only at 40% of capacity, though the same rate as before the shutdown. We then had the ECB surprise markets with a 50bp rate hike. It seems the hawks were in a hurry to front-load rates as much as they could get away with before a looming recession.

There was then the ditching of forward guidance for future ECB meetings. Especially in times of uncertainty, this tool has proved to be “iffy”. (And that’s giving central bankers the benefit of the doubt – just one example being President Lagarde stating at the end of last year that she was not expecting rate hikes in 2022). The so-called Transmission Protection Instrument (TPI – or anti-fragmentation policy) was also introduced, though with few details and a lot of conditionality attached. The EUR benefited initially but gains were faded. Traders are not convinced that policymakers have much more room to hike rates with so many headwinds facing the eurozone. Parity beckons, especially if this morning’s PMI surveys confirm a bleak outlook and we lose 1.0153/55 support.

Chart of the Day – S&P500 breaks higher

We get the tech titans Q2 results next week with Alphabet, Meta and Apple releasing on Tuesday, Wednesday and Thursday after the US close. Like many of its peers, Apple announced earlier this week that it will be cutting back on hiring due to tough global macroeconomic conditions. The strength of the dollar will also be a concern. It has already impacted results on numerous other companies who earn most of their revenues outside the US.

We covered the benchmark S&P500 a few weeks ago and highlighted resistance at the 50-day SMA. Bulls have broken through this, so it now becomes support at 3919. The index has been in a broad bear channel since the end of March. The top of that channel sits around the 4000 level. Above here is the February low at 4114.