US stocks dip as Alphabet plunges; EURUSD back at $1.12

Summary:

  • Nasdaq pulls back with Alphabet called to open -7%

  • Green shoots in China nipped in the bud?

  • EURUSD back at $1.12 after data releases

  • Will the Fed cut interest rates?

 

There was a bit of selling seen in US indices after the closing bell last night with the Nasdaq (US100 on xStation) the worst hit as the markets reacted negatively to the latest set of results from Google parent company Alphabet (GOOGL.US on xStation). The decline in after hours trade saw the benchmark pullback from its highest ever level around 7880 to end the day in the red. Previous record highs around 7725 could now be seen as possible support for the market and its not really unless price drops below there that the bears can get too excited and hope for a sustained decline.   

 

For Alphabet, an increase in the top line of 17% for a company that now has an annual turnover of $36.3B would normally be seen as impressive, but analysts had even more lofty forecasts with the figure around $1B less than the street consensus. The shortfall was blamed on numerous factors such as the strength of the US dollar and a strong corresponding quarter last year, but there is a growing concern that the core advertising business may have peaked. Shares are down by around 8% lower this afternoon after ending Monday at their highest ever level.

 

The latest look at Chinese manufacturing came in worse than expected overnight, with both an official and a private gauge of activity disappointing and suggesting that optimism around the recovery last month may have been premature. Aided by substantial stimulus measures, March saw the manufacturing sector return to growth after 5 consecutive months of contraction but even though the latest readings are once more above the 50 mark, and therefore in expansion territory, the levels of growth remain anaemic at best.

 

Furthermore, the employment component in the Caixin release was back in negative territory after hitting a 74-month high in March, while new orders increased at a slower rate than in March - largely down to subdued foreign demand. Shares in Shanghai managed to eke out a small gain despite the disappointing data, with investors seemingly of the mindset that bad news isn’t all that bad as it will likely pertain to further rounds of stimulus.

The EURUSD has built on a rally which began yesterday morning as the most popular currency pair looks to recover from its lowest level in almost 2 years seen last week. The latest German inflation figures released earlier this afternoon have provided some good news for bulls, with the release coming in well above forecast. A couple of hours later we got the main data point of the day from the US, with the Conference Board consumer confidence index rising to 129.2 from 124.2 last time out. The prior reading was subject to a small upward revision of 0.1 and the current reading was comfortably above the 126.8 expected. This is clearly a strong reading and supports the recent bounce back in the UoM equivalent with both consumer confidence metrics still not far from their highest levels of the decade. The EURUSD has moved back above the 1.1180 region and is now retesting the 21 EMA from below. The 8/21 EMAs remain in a bearish orientation but price has bounced from the lower reaches of a falling trend channel which has contained the market so far in 2019.

 

Just four months ago the Fed hiked interest rates and signalled further increases in 2019. Fast forward to present and there's some speculation that rates could be cut as soon as this week - but why would the Fed consider such a move and how could one link it with the US dollar being close to multi-month highs? Read our full analysis here.

 

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Morning wrap (27.10.2020)
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