Risk currencies and equity markets are rising at the start of the US session (breaking two consecutive days of losses in the S&P 500) after General Electric, Microsoft, and Schlumberger released earnings reports that were higher than analysts expectations. GE advanced by 1.3 percent while Schlumberger posted gains of 2.5 percent. Microsoft was higher by 3.4 percent in early trade, helping push the S&P 500 to trade above 1375, reversing some of the April losses. Prior to this month, the S&P was in the midst of its biggest quarterly rally since 1998 but for the month, the index is still showing losses of more than 2 percent.
In Europe, the positive sentiment was also helped by the German IFO business confidence survey, which showed a rise for the six consecutive month, further suggesting that the largest economy in Europe is recovering from the region’s debt crisis. The IFO survey increased to 109.9 (versus estimates of 109.5), a small increase from the 109.8 seen in March.
Markets will also be watching the results of the latest G20 meeting, where there will be an announcement outlining additional funding for the European reserves allotted to the International Monetary Fund (IMF). The managing director of the IMF (Christine Lagarde) is looking for $400 billion in additional funding from the Group of 20 nations as a means for creating a protective firewall to prevent debt contagion.
Looking at the broader market environment, 88 companies in the S&P 500 have reported earnings since April 10th, and 75 of those releases have beaten analyst expectations. Today’s GE report showed an earnings per share (EPS) of 34 cents, while Microsoft earnings came in at 60 cents per share (against estimates of 57 cents). Microsoft sales were also higher, coming in at $17.4 billion (an increase of 6 percent). Equity prices have seen some declines this month but still trade close to their yearly highs as companies manage to generate profits despite generally weak employment figures, so any changes in corporate performance would leave markets in a very vulnerable position.
The EUR/USD is pushing higher on the shorter term time frames, with prices now coming into critical resistance at 1.3210. A break here will be significant, and likely push prices higher into the open next week. The longer term trend is clearly downward, but a break of current levels will call for a test of daily trendline resistance. Only a break back below 1.3065 will put the focus back on the downside and put the 1.30 back into trading targets.
The DAX is rolling over from its yearly highs but remains at relatively elevated levels on the daily charts. But when we drill down to the shorter term time frames the current congestion into support is suggestive of a downside break. Consolidation here isn’t totally surprising given that this is where the 100 and 200 day EMAs rest, but a clear downside break will put the focus back on 6360 before any bounce can be expected.