Caution Prevails Ahead of Big Tech Earnings

Most Asian equities flashed red on Tuesday, pressured by losses in Chinese shares as investors evaluated China’s re-opening story in the face of negative economic and geopolitical forces. European futures are pointing to a mixed open with market players guarded ahead of another event-heavy week for financial markets. Some of the largest companies in the world including the four Big Tech titans (Microsoft, Alphabet, Meta and Amazon) will be reporting their results this week. If the corporate earnings paint an overall encouraging picture, this could boost risk sentiment and support equity bulls. However, a set of disappointing results is likely to enforce renewed pressure on stock markets with the S&P500 and Nasdaq feeling the brunt.

In the currency space, the dollar attempted to stabilize during early trade after slipping in the previous session as more signs of slowing US economic growth cooled Fed hike bets. With markets now pricing in the peak for US interest rates in June, dollar bulls could be running on fumes. Gold drew strength from falling Treasury yields while oil prices steadied after two days of gains.

Dollar bears to hijack the scene?

Repeated signs of cooling price pressures and disappointing US economic data could add more fuel to expectations around the Fed pausing rate hikes and eventually cutting down the road. On Monday, softer US manufacturing data strengthened the argument for the Fed to pause. There are more major releases from the US economy this week including April consumer confidence data, Q1 GDP figures, and most importantly the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure.

US economic growth in the first quarter is expected to moderate from the 2.6% in the previous quarter while persistent price pressures may be present in Friday’s core PCE report. Ultimately, if the data supports expectations around the Fed taking a pause from rate hikes after May, this may drag the dollar lower.

Looking at the technical picture, the Dollar Index remains under pressure on the daily charts. Weakness below 102.00 could trigger a decline towards 100.79 and 100.00, a level not seen since April 2022.

Commodity spotlight – Gold

Gold briefly punched above the psychological $2000 level during early trade this morning as falling Treasury yields and dollar weakness sweetened appetite for the precious metal. Nevertheless, it still remains trapped within a sticky range thanks to the ongoing uncertainty over the Fed’s next move beyond May. With markets now expecting US rates to peak in the summer and a rate cut by December, gold has the thumbs up to push higher in the longer term. Meanwhile, volatility could be the name of the game due to shifting expectations around future Fed policy moves.

Turning to the technical, price action suggests that a fresh catalyst is needed to trigger a bullish or bearish breakout. A strong move above $2000 may inspire a push towards $2025 and $2048. If prices remain below $2000, gold could test $1950 and $1900.