Overnight Headlines

*Global bonds rally as earnings, growth concern fan demand for havens

*Meta plunges as Facebook users halt, forecasts fall short

*Huge drop in US ADP employment warns of negative NFP

*Oil slides as OPEC+ stay the course   

US equities enjoyed another solid session extending their rally to a fourth day. The S&P500 brought its increase since the start of trading on Friday to 6% as Alphabet and AMD lifted the tech sector after a bruising start to 2022. But PayPal fell just under 25%, and Meta dropped over 20% in extended trading after weak earnings and guidance. Asian markets are lower this morning and Nasdaq futures are heavily in the red.

USD continued to slip for a third day on the positive risk mood. The DXY has hit support at the 50-day SMA just above 96. Similarly, EUR/USD is touching the same SMA around 1.13 after higher-than-expected eurozone inflation data. The antipodeans strength this week suggest some position squaring with the equity rebound and stretched net-shorts helping. GBP pushed above the 100-day SMA at 1.35 ahead of a second consecutive hike by the BoE later today.

Market Thoughts – Tale of two contrasting central banks

The BoE meeting is set to produce a second straight rate hike, something the bank hasn’t done since 2004. This is fully priced in with a total of five 25bp hikes by end-2023. Focus will be on the inflation forecasts and whether the policymakers still feel CPI will be above their 2% target over the medium-term in 2 to 3 years’ time. Analysts see a possible two dissenters to the hike.

On the flip side, the ECB will stand pat, though the recent strong inflation data will add pressure to the doves and President Lagarde to at least acknowledge the high prints. The bank may caveat this with growth risks remaining broadly balanced so guidance will be key. Markets price in 30bp of hikes by December, up from one 10bp hike at the start of the year. Many think this is too aggressive so expect volatility at the press conference.

Chart of the Day – EUR/USD rally faces resistance

The euro has found a bid over the last few days after it broke long-term support at 1.1186 last Thursday. The soft weekly close didn’t see any follow through and it will be up to the ECB to see if they can sustain the rally. A wait-and-see approach by the governing council could see gains given back with the 50-day SMA at 1.1305 proving resistance. Support below is 1.1250 and 1.1227.

If Lagarde strikes a more hawkish pose, the pair will face trendline resistance from the losses since June around 1.1350. The 100-day SMA sits above here at 1.1430.