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We knew that yesterday was not going to be a bright day, as Microsoft, Google and AMD have all seen a negative market reaction to their fantastic quarterly results that failed to match the huge market expectations. And a surprise Q4 loss at New York Community Bancorp revived the bank worries and sent the yields tumbling, even though the Fed pushed back on expectations of a March rate cut. He signaled talks regarding QT unwinding however!

The US dollar swung between gains and losses yesterday, and is slightly above its 200-DMA at the wake of the latest Fed decision. The EURUSD extends losses to 1.08 psychological mark as French and German inflation figures were soft enough to keep inflation worries and the European Central Bank (ECB) hawks at bay.

Across the Channel, the Bank of England (BoE) will give its latest policy verdict today. British policymakers will likely push back on early rate cut expectations after the latest inflation numbers in the UK revealed a mini U-turn in easing price dynamics. But Brits are expected to deliver a brighter outlook for their economy, lower inflation forecasts and open the door for rate cuts later this year.

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We had good news, bad news and news that are fundamentally good for the economy and bad for the global rate cut expectations.

The European economies performed better than expected last quarter, but we see an uptick in latest inflation metrics. The US companies announce more layoffs, but the job openings increased in December.

The Federal Reserve (Fed) will announce its latest decision today as investors will be hunting for clues about the timing of the first rate cut.

In the corporate space, Microsoft released its latest quarterly results after the bell yesterday. Both earnings and revenue were better than expected but Microsoft stocks fell up to 2% in the afterhours trading because the company gave a light quarterly outlook. Google fell almost 6% and AMD fell more than 6% in the afterhours trading after their results failed to match expectations.

Is this the beginning of profit-taking and correction? Could be.

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It was yet another day, and another record high for the US major stock indices. The S&P500 traded to 4930 for the first time, driven higher by falling US yields after the US Treasury surprisingly cut its quarterly borrowing estimate, on hope that five of 7 Magnificent stocks will surprise positively when they reveal their results this week, and on hope that we might hear something relatively dovish from the Federal Reserve (Fed) meeting this week.

Microsoft, AMD and Google are due to report earnings after the bell, and the Fed will announce its latest policy decision on Wednesday.

The dovish Fed expectations prevent the US dollar index from making a decisive move above its 200-DMA. Investors expect the Fed to cut the rates from May and the dollar to lose value this year. But nothing is less certain, the rising oil prices look threatening to Fed’s rate cut plans.

Elsewhere, the EURUSD has been benefiting from a limited courage to sell the US dollar, but the pair is extending losses below its 200-DMA on expectation that the European Central Bank (ECB) can’t keep its interest rates at the current levels with the sputtering economies. This morning, the Eurozone countries will start revealing their inflation and growth updates. The lower the growth, and the slower the inflation, the sooner the ECB will cut rates. But if inflation surprises to the upside, we could see a part of the ECB dovishness vanish, even with gloomy growth numbers.

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US crude jumped past the $79b level this morning on escalating tensions in the Red Sea. The European and American futures are slightly in the negative at the time of writing, and stocks in Hong Kong and China were better bid on Monday as China imposed ban on short sellers, but the gains remained short-lived after a HK court ordered Evergrande’s liquidation. Globally, we see a limited risk appetite at the start of a week packed with economic data, central bank decisions and corporate earnings.

The Fed will keep rates unchanged this week, and Powell will likely say the same thing than Lagarde last week: that inflation looks on path toward 2% goal, that soft landing is no longer a daydream and that the Fed will relax rates, but the timing will be data dependent. The Bank of England (BoE) decision, euro area growth and inflation numbers, Australian inflation update, Canadian GDP and the US jobs numbers will be closely watched.

On the corporate calendar, Microsoft, Alphabet, Apple, AMD, and US big oil companies are among the names that are due to announce their latest earnings this week. A major part of the investor focus will be on Microsoft and its AI announcements. Any positive surprise should keep investors on their cloud. But note that, overall, 25% of the companies in the S&P500 have reported results for Q4. Of these companies, 69% have reported actual EPS above estimates, yes but that’s below the 5-year average of 77%, according to FactSet.

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The euro traded south yesterday, as the European Central Bank (ECB) Chief Christine Lagarde reckoned that growth and inflation are slowing, while insisting that the rate cut decision will be data dependent.

Across the Atlantic, the US released its latest GDP update and the data was as good as it could possibly get. Yesterday’s US GDP data was the definition of goldilocks in numbers: good growth, slowing inflation. A dream comes true…?

Oil bulls finally got the positive breakout that they were looking for in oil prices.

The US dollar index ticked higher yesterday, as the euro fell across board during ECB Lagarde’s presser. But any further weakness in today’s PCE numbers could limit the upside move in the dollar index and throw a floor under the EURUSD’s weakness around the 200-DMA.

In equities, the good data gave a positive spin to the S&P500 and Nasdaq 100, but Tesla’s 10% slump limited gains. Intel tumbled 10% in the afterhours trading following a disappointing forecast as it has hard time fighting back the all-strong Nvidia and AMD which are catapulted to the moon on the AI craze. The good news is, Nvidia and AMD lovers will barely react to Intel news.

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The stock rally continued on both sides of the Atlantic on Wednesday; the technology and chip stocks remained in the driver seat. Sentiment in Europe was bolstered by an almost 9% rally in ASML on news that their orders more than tripled last quarter. Nvidia hit a fresh record, Microsoft was worth $3 trillion for some time. The S&P500 and Nasdaq 100 hit a fresh record, and Netflix – which has nothing to do with AI, but which was just cheering its 13-mio new subscribers for the latest quarter - jumped 10%. Tesla fell in extended trading after earnings miss.

But except for Tesla, all goes well for those who are in the technology boat sailing north. For the rest, skepticism best describes how they feel about an unsustainable rise in valuations.

Elsewhere, the Chinese are serious about bolstering their economy and they look like they are getting to a place where they are ready to do whatever it takes to reverse the slowing trend. But note that China’s supportive policies may not echo well across the developed markets’ central banks, because the Chinese stimulus – if successful – should boost global inflation and interfere with DM central banks’ plans to loosen policies.

Still, until we see concrete results, softer policies remain the base-case scenario for the Federal Reserve (Fed) and the other major central banks (except Japan). In this context, the Bank of Canada (BoC) kept its rates unchanged at yesterday’s meeting and called the end of rate hikes. The European Central Bank (ECB) will meet today and will certainly vehicle the same message - that policy tightening is over. But that’s not enough.

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Netflix jumped 8% in the afterhours trading as its revenue and new subscriptions topped estimates.

Strong Netflix results will likely give a positive spin to the major US indices which were slow to move yesterday after the Richmond manufacturing index came in much lower than expected.

Robust US economic growth, strong earnings and prospects of lower Fed rates remain supportive of equity valuations, although the ATH levels and near-overbought market conditions in the S&P500 call for – at least – a minor correction in the short run. Today, Tesla will be reporting its latest Q4 results after the bell.

In China, though, sentiment is the exact opposite. Chinese stocks saw a little bump yesterday on the announcement of a $278bn rescue package to lift the Chinese stocks up. But skepticism reigns.

In the FX, the US dollar index is testing the 200-DMA to the upside and the EURUSD is testing its 200-DMA support to the downside ahead of today’s PMI data and tomorrow’s European Central Bank (ECB) decision. The Bank of Canada (BoC) meets today and is expected to maintain rates unchanged.

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The week started on a positive note on both sides of the Atlantic Ocean. Equities in both Europe and the US gained on Monday. The tech stocks continued to do the heavy lifting with Nvidia hitting another record. Moving forward, the earnings announcements will take the center stage, with Netflix due to announce its Q4 results today after the bell.

The situation is much less exciting for China. Chinese stocks are better bid because Chinese Premier Li Qiang called for more effective measures to stabilize the slumping Chinese stocks, but the truth is, investors left Chinese stocks because of the ferocious government crackdown on most loved Chinese companies. Nothing less than drastic financial support would be enough to bring investors back.

Elsewhere, the Japanese stocks continue to be the bright spot among the Asian equity markets. The Bank of Japan’s (BoJ) negative interest rates, the cheap yen and the positive outcomes of the tech war between the US and China have been pushing the Japanese Nikkei index to multi-decade highs, and these factors are not ready to reverse just yet. Today, the BoJ didn’t only announce that it would keep the interest rates unchanged at -0.10% and the upper band for the 10-yer yield steady at 1%, but the bank lowered its inflation forecasts.

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Friday’s economic data was yet another proof of the diverging fortunes between the US economy and the rest of the developed world. In the morning, the UK announced that its retail sales slumped for the second straight year, fueling the worries of a mild recession in the UK this year. But in the afternoon, Michigan’s consumer sentiment index showed an advance to a more than two year high, the expectations improved more than expected, and falling inflation expectations were a cherry on top.

Strong US economic data has been tempering the expectation of a March rate cut from the Federal Reserve (Fed). But the Fed is still broadly expected to cut in May, if it doesn’t in March. The US yields are drifting gently higher from last year’s end levels. The rebounding yields weigh heavier on the S&P493; the equal weighted index continues to underperform the Magnificent 7.

The earnings season continues full swing with Netflix and Tesla due to announce their latest quarterly results this week.

The week’s economic calendar is also busy with major central bank meetings including the Bank of Japan (BoJ), the European Central Bank (ECB) and the Bank of Canada (BoC).

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