Disappointment from US big tech threatened recent rally: US dollar, USD/JPY, EUR/USD

Market Recap

Disappointment from big tech earnings remained a drag on US equities overnight as weaker-than-expected performance led markets to revisit their valuation, where a lot of future growth potential is being priced. Markets were generally accustomed to seeing some form of outperformance and stability from these big tech, therefore a more downbeat outlook from lacklustre consumers’ and firms’ spending could come as a negative shock. Meta plunged close to 25% yesterday, breaching below the US$100 level. After US market closes, Amazon's share price is pointing to a drop of more than 12%. Markets seem to be finding fault with the revenue miss for its cloud segment and the downbeat sales forecast into the holiday season. Perhaps the more resilient performance will be from Apple, which delivered both a top and bottom-line beat, as higher margins and better-than-expected Mac computers sales aided to offset the underperformance in iPhone sales. But nevertheless, a grim forecast into the holiday quarter was being echoed as well. The company provided a vague outlook, guiding for revenue growth to be below 8%, which will indicate further slowdown from the current 8.1%.

The higher-than-expected US third-quarter gross domestic product (GDP) failed to trigger much upside, potentially because the data is backward-looking while economic conditions are almost certain to see further moderation ahead. Nevertheless, it may push back against talks of a recession for now, which could explain the holding up of the Dow Jones Industrial Average (DJIA) (+0.6%). The US dollar saw a 0.75% gain, but is finding itself at a previous support-turned-resistance level at the 110.20 level. The formation of a new lower low could still present a near-term downward bias, with the 108.70 level looked upon as a key confluence of support to breach for further downside.

With much of the heavy-tech earnings having been released, markets could gradually shift their focus towards the upcoming FOMC meeting over the coming days. Some optimism has been riding on expectations that the Fed may signal for some slowdown in rate hikes after November, so confirmation from Fed officials will be highly looked upon at the meeting.

Asia Open

Asian stocks look set for a negative open, with Nikkei -1.19%, ASX -0.66% and KOSPI -0.39% at the time of writing. Some regained strength in the US dollar, along with US equity futures trending in the red, translated to a more lacklustre showing in Asia’s session today. The Nasdaq Golden Dragon China Index was lower by 3.6% as well. Ongoing zero-Covid-19 uncertainty has more than offset recent words of support from authorities, which has been heard many times before, while surfacing virus cases continue to put restriction measures in place.

Closer to home, UOB posted a 34% year-on-year rise in 3Q net profits this morning, as a 28 basis-point catch-up in net interest margin (to 1.95%) aided to underpin a 40% jump in net interest income. Loan growth continues to moderate, but remains somewhat resilient at the mid-single digit (5.6%). Loan loss provisions are also lower from a year ago, likely because our local banks have been conservative in releasing our loan loss provisions from Covid-19, which calls for a more measured allocation now. On the flip side, the weighing block comes from a 10% drop in net fee income, which marks a sharper contraction from the previous quarter. It may not be too much of a surprise, considering that market conditions in the quarter remain lacklustre for investors. A more upbeat tone came from the bank that ASEAN economies are expected to ‘show resilience and avoid a recession’. This seems supported by the stable non-performing loan ratio at 1.5%, as asset quality remains healthy. Overall results seem to display some form of resilience.

Looking ahead, the Bank of Japan (BoJ) will conclude its meeting, with expectations for a no-change in policy stance. That said, there have been mounting expectations for an eventual rate hike in March next year, as inflation moved further beyond the central bank’s target and the yen remains weak. The USD/JPY (大口） has recently breached an upward trendline on US dollar weakness, and a retest of the trendline resistance seems to be on the table. The near-term bearish bias could still seem to remain, with one to watch for any breakdown of the 145.90 level of support. That may unlock the door to the 143.60 level next.

On the watchlist: EUR/USD pushed above descending channel pattern. Can it last?

The European Central Bank (ECB) hiked by 75 basis point yesterday, in line with market expectations, as catch-up tightening continues in order to tame high inflationary pressures. Further rate hikes are guided over the next few meetings, but the more data-dependent stance from the central bank seems to suggest room for smaller-scale hikes. With that, the EUR/USD has pared some of its previous gains, along with some strength in the US dollar. On the technical front, the EUR/USD has previously broken out of its long-term descending channel pattern on Wednesday but faced resistance at the key parity level. For now, chances of an upside remain on the table with the channel breakout, with one to potentially watch for the formation of a higher low. The key parity level will have to be overcome to provide greater conviction.

Thursday: DJIA +0.61%; S&P 500 -0.61%; Nasdaq -1.63%, DAX +0.12%, FTSE +0.25%