Resilient earnings tame macroeconomic worries

00:00:00: Hi everyone and welcome to Swiss Codes Daily Market Talk.

00:00:04: We are the first day of May, geopolitics remain ugly with no resolution in sight for tensions around the Strait of Hormuz keeping oil supply tight Elevated.

00:00:15: Central banks are holding their race steady, but the divergence in tone is quite striking particularly at ECB that discussed about hiking interest rates this month.

00:00:25: But equities remain resilient strong earnings not to blame.

00:00:29: banking energy And also AI related names are offsetting macro concerns and that AI driven optimism continues to push US indices to record high levels.

00:00:41: In summary, the market rarely continues despite an unideal geopolitical and macroeconomic backdrop into the month of May which is actually known as being a seasonally weak months.

00:00:52: so we will talk about what to expect in the month may more but before.

00:00:58: Please keep in mind that opinions are my own and this is not financial advice.

00:01:11: So another month ended with no light at the end of The Tunnel for Iran War.

00:01:16: On the contrary, US is NOT willing to lift a naval blockade In the Strait of Hormuz While Iran said it will not give up its nuclear program And we'll not come into the negotiation table if U.S doesn't lift that blockade.

00:01:30: I mean We're repeating same sentences every day Meanwhile, the near closure of the Strait of Hormuz keeps the oil market around the world quite tight.

00:01:38: Donald Trump downplayed yesterday the rising oil prices as there is plenty of oil in the market In The Strait Of Hormiz block.

00:01:45: there he said that oil prices will come down like a rock when issues are resolved.

00:01:50: But When Will The Issues Be Resolved?

00:01:52: That No One Knows And this was expected conclusion after various central bank meetings This week The Federal Reserve The Bank of Canada The European Central Bank and the Bank of England, all of these central banks left their raise unchanged this week but accompanying statements were more aggressive for once than others.

00:02:11: In this context European Central Bank for example left interest rates unchanged at yesterday's announcement which first resonated as being quite dovish decision across the markets until, until Kristen Lagarde took to stage and told everyone that.

00:02:28: The possibility of a rate hike this month was actually discussed at this week's meeting.

00:02:33: on that action could eventually come as soon depending on the economic data.

00:02:39: But that's issue, right?

00:02:40: The data announced earlier to the ECB decision yesterday confirmed that energy crisis slowed growth in Europe to almost none and their first quarter of this year while pushing inflation three percent.

00:02:53: So at some point, the ECB must step in to tame inflationary pressures by destroying demand or growth but also knowing that destroying demand in Europe won't open the straight of hormones and won't pull energy prices notably lower.

00:03:07: so it's a tight rope to walk.

00:03:09: infinite will come down to whether the actual inflationary pressure is well reflect in salaries.

00:03:18: That's going to be determined for the ECB on whether they will go ahead with a rate hike in June and more.

00:03:25: The same applies to the other central banks of course as well.

00:03:30: Now what's clear is that ECB's hawkish stance though brought the euro bulls in.

00:03:34: yesterday after Kristen Lagar's press conference, the Eurodollar extended its recovery above a hundred-day moving average but a benchmark ten year yield for the Euro area bonds fell sharply as it sucked.

00:03:47: six hundred jump one point thirty eight percent after a sharp rally and oil prices was followed by a sharp downside correction.

00:03:55: And because there was no clear trigger for that correction, I believe the sharp move we saw in oil prices to the downside yesterday was a reaction to the preceding rally.

00:04:05: To levels that actually do trigger the narrative of demand destruction and they demarcate reactions since the start of this war suggests that market shifts into that Demand Destruction Narrative as soon as we approach and bridge the one hundred twenty dollars per barrel level.

00:04:23: Of course, this is not a line in the hand.

00:04:26: A prolonged conflict could eventually break the back of the US dollar per barrel offers.

00:04:32: but yesterday, the sharp retreat and oil prices certainly helped boosting appetite.

00:04:39: On that front, the strong earnings especially from banks and energy players clearly boosted appetite in stock's six hundreds.

00:04:47: Parallel to what is happening across Atlantic Ocean because over there major US indices hit fresh record high levels yesterday thanks Really, the Dow Jones on the other hand also gained one point.

00:05:01: sixty two percent is still a little bit lower than its all-time high level but Caterpillar for example.

00:05:07: The world's biggest construction equipment maker crushed estimates with it twenty two percent wise in his first quarter revenue thanks to the massive data center demand and electricity infrastructure needed power them up.

00:05:23: The company CEO said that the company accumulated a record backlog of orders.

00:05:29: He was talking about sixty three billion US dollars orders up nearly eighty percent since last year, suggesting that AI boom is stealing jobs from many white collar workers.

00:05:40: but it's creating jobs elsewhere especially in construction And some predict that the AI spending will hit the one trillion US dollar mark next year, which wouldn't be surprising as after latest earnings update.

00:05:53: The big technology alone is now expected to spend past seven hundred billion us dollars this year.

00:05:59: That could also be revised up to eight hundred two nine hundred billion U.S.

00:06:03: dollars As we move on this here if you ask over core and Bank of America analysts, so this AI boom is spilling beyond the technology and AI models.

00:06:15: They are spilling into construction names and there going to be plenty jobs on that front.

00:06:20: Let's watch.

00:06:21: So we're entering the month of May, which seasonal it tends to be.

00:06:23: a slow month they say is seven may and go away right.

00:06:26: but We are entering this month with resilience off the corporate earnings outweighing The war headlines and inflation related worries.

00:06:35: data released yesterday in the US warned that the U.S economic growth may have slowed To two percent In the first quarter of this year.

00:06:43: But price pressures unexpectedly ease as well.

00:06:46: and let her pull the US two-year yields.

00:06:49: that captures a Fed rate expectations lower.

00:06:52: as U.S ten year yield slip below the full point forty percent mark, u.s futures are hinting at a positive start today while many European markets here will be closed due to labor day holiday.

00:07:04: I believe that AI optimism will be the base case for today, before the weekend unless things get ugly on the geopolitical front.

00:07:12: But if you don't see any major news.

00:07:14: i think we could see another record high in the S&P five hundred and as a hundred before we close this week.

00:07:20: Because yesterday after the bell, Apple announced its latest earnings and the results were actually better than expected as revenue from their subscription services reached almost thirty-one billion US dollars.

00:07:31: The company also authorized a hundred billion USD worth of stock buyback and increases dividends by four percent which is kind great when inflation expectations are rising And the latter could give an additional boost to AI & technology complex today But in the particular case of Apple, but the company is nowhere to be found.

00:07:49: And then AI race.

00:07:50: really it relies on others models instead.

00:07:52: from a spending perspective that's great because they don't have to spend on pricey infrastructure, but from a strategic perspective, The fact that there are not building their models or increases their reliance to model providers like Gemini open AI which means our margin pressure and reduced control over its ecosystem overtime will be building up leaving apple more exposed to the pricing power and innovation cycles dictated by external AI providers rather than its own decisions.

00:08:23: So I'm not really convinced that Apple is In the effects, the U.S.

00:08:28: dollar eased yesterday pulled sharply lower by a swift sell-off in the dollar yen after Japanese authorities stepped in and warned that they would intervene to halt the yen's depreciation after the pair traded past the one hundred sixty level.

00:08:43: Surprise!

00:08:44: That was an easy trade I guess for those who knew what happened.

00:08:48: because there is indeed very clear pattern today When the dollar yen approaches or trades above the one-hundred and sixty level, Japanese authorities express their concerns.

00:08:57: They warn that they will intervene... ...and maybe they also do intervene!

00:09:01: Now of course the effects.

00:09:02: intervention itself is not enough to reverse the yen's depreciation but it does clear the speculative bearish positions and give relief for a while.

00:09:10: And for traders well buying Japanese Yen may be convincing in the midterm run But selling the Dollar Yen into the one hundred and sixty if done timely could actually result in quick gains.

00:09:21: So this is all for this week, I'm Ipek Oskar Deshkoye and thank you for joining me!

00:09:25: And Thank You For All Your Beautiful and Supportive

00:09:28: Comments!!

00:09:29: I hope This Episode of Market Talk has been helpful & it's been insightful to you so please do not hesitate to leave your comments, reactions or questions below.

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00:10:01: So I will meet again next week.

00:10:03: Until then Good day trading and have a lovely weekend.

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