Q2 earnings and Nord Stream news driving markets higher

Updated July 20, 2022


*Russia seen restarting gas exports from Nord Stream 1 on schedule

*ECB weighs bigger rate hike with safety net for indebted countries

*BoE’s Bailey says BoE will consider a half-point rate hike in August

*Asian shares extend a global rally as dollar loses steam

USD is getting sold into as it languishes near two-week lows. Easing expectations that the Fed would resort to a jumbo 100bp rate hike next week are pressuring the dollar. Meantime, EUR has hit a two-week high as the market prices a more aggressive ECB. Yesterday’s intraday high was at 1.0269. GBP closed higher for a third day too and is trading above 1.20 this morning. AUD and NZD are bid again with the kiwi breaking trendline resistance today.

US equities pushed higher and look to be breaking out of the recent range. The tech-heavy Nasdaq was the best performer, up over 3% to close at 12,249. The broad benchmark S&P500 gained 2.76% to close at 3936. The VIX, Wall Street’s fear gauge, has eased this week and is back below 25. Netflix predicted it would return to customer growth this quarter and its shares have gained 8% after hours. Asian stocks are all in the green helped by the expected resumption of Russian gas supply to Europe. US futures are pointing to another positive open.

Event Takeaway – EUR boosted by 50bp chatter

We had news reports out yesterday suggesting that the ECB is “looking more closely” at a half point rate move. This comes after signalling a 25bp increase was the most likely starting point for rate lift off just a few weeks ago. This certainly has echoes of the WSJ article that hit markets before the last FOMC meeting which heralded a larger 75bp hike.

The euro gained over 1% on the day which means the bank will have to follow through with the 50bp hike, or at least tee-up that policymakers are open to a 75bp move at its next meeting in September. That would probably be the compromise for the hawks in the Governing Council if the ECB only hike by 25bp on Thursday. Markets are currently pricing in around a 45% chance of a 50bp increase in rates, that’s up from around 30% before the news story broke. If we get positive detail on the anti-fragmentation tool tomorrow, the euro will certainly test 1.0341 which is firm resistance above.

Chart of the Day – Tesla hoping to break out

Earnings season is in full swing with the eponymous EV-maker set to release its Q2 results after the US close. Focus will be on car deliveries as the hope is for a figure above 1.3million in 2022. Output is expected to be disrupted by maintenance shutdowns at its Shanghai and Berlin factories. Q2 profit is forecast to come in at $1.81 a share. The Wall Street consensus for revenue this quarter is $16,521 billion.

Chartwise, the stock made a cycle low in late May around $620. Since then, prices have tracked sideways close to $800 on the topside and back around $650. We are currently nearing the upper part of the range and trading just above the 50-day SMA at $715. Bulls will look to break above the June high at $792. Support sits at the 50-day SMA and then the July low at $648.

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