Europe braces for lower open after Nasdaq rout

For most of yesterday it looked like European markets would end the day higher, unfortunately US markets had other ideas, opening lower and reversing all the gains from the previous session.

This weakness dragged European equities to their third consecutive daily decline, although the FTSE100 managed to make a paltry gain, helped by the outperformance of the basic resources and energy sector.

Yesterday’s market weakness was led by the Nasdaq 100, which slipped to its lowest levels in more than a month. The failure to sustain the attempted recovery is not only worrying, but also signals a widespread lack of confidence in the economic outlook, as well as the ability of central banks to stage a “soft landing” as they seek to fight inflation.

As US markets ended the day sharply lower, erasing all of their Monday gains, we also saw the Nasdaq 100 post its biggest one-day drop since February 3.rdwhile the Russell 2000 posted its lowest daily close since December 2020.

The general risk tone we saw yesterday also manifested itself in another day of falling yields, suggesting that investors are now starting to embark on a process of de-risking equities, while the index of the US dollar seems to be approaching its highest level in 3 years.

As stock markets fell sharply, oil prices were slightly more resilient, but that was lower than reports that Russia cut off gas flows to Poland after the Polish government refused to pay. in rubles, which drove up energy prices.

This escalation on the part of Russia, as well as reports that Moscow could be behind a number of incidents in Moldova, with a view to mobilizing its troops there, did not help, while Russian Foreign Minister Sergey Lavrov’s comments on the risk of nuclear war only served to further disrupt the markets.

Lavrov’s remarks appear to be the Kremlin’s latest attempt to try to unbalance the US and NATO in a war that has not gone Russia’s way and is unlikely to give them the results they were hoping for. .

Any hopes of a respite from yesterday’s sell-off with the release of last night’s numbers from Microsoft and Alphabet appeared dashed after investors reacted badly to Alphabet’s numbers, although post-release sentiment after the opening hours can be unstable at best.

Microsoft, on the other hand, saw its third quarter numbers come in better than expected. Revenue came in at $49.36 billion, slightly better than expected, as did profit at $2.22 billion. Personal computing saw revenue of $14.52 billion, helped by decent sales of Windows 11 and Xbox, while its smart cloud business, which includes Azure, generated $19.05 billion in revenue.

Alphabet saw total revenue hit $68.01 billion in the first quarter, while operating margins hit 30%. First-quarter earnings were slightly lower at C$24.62 per share as the company announced it was repurchasing an additional $70 billion of shares.

At first glance, those numbers look pretty good, but it seems investors took issue with the company’s lack of services revenue, hitting $61.47 billion, below expectations of $62.58 billion. This was primarily due to lower-than-expected advertising revenue from YouTube, which saw revenue of $6.9 billion, below expectations of $7.4 billion.

Due to yesterday’s weak US earnings, markets here in Europe are expected to open lower this morning amid escalating geopolitical risks and declining confidence in the economic outlook.

EUR/USD – found support at the 1.0630 level, with a break targeting the 2017 lows at 1.0340. The 1.0750 area now becomes resistance along with the 1.0820 area.

GBP/USD – looks set for a test of the 1.2490 zone, the 61.8% retracement of the move from the 2020 lows at 1.1410, to last year’s highs at 1.4240. We now have resistance in the 1.2820/30 area.

EUR/GBP – continued to edge higher against the 200-day MA and the 0.8470/80 zone. Support comes in at 0.8380 area. It looks like we are in a range between 0.8500 and 0.8200.

USD/JPY – Failure to break above the 129.00 area has resulted in some profit taking as we look to head back down towards the 125.80 area, on a break below the 127.40 level. Major support is at the very bottom near the 124.70/80 area.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not expressing opinions) is provided for informational purposes only and does not take into account your personal circumstances or objectives. Nothing in this document is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically restricted from processing prior to providing such material, we do not seek to take advantage of the material prior to its dissemination.

Mary I. Bruner