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Will Google Earnings Shorten the S&P 500’s Recovery, and How Serious Is the Event Risk?

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Google, Nasdaq 100, S&P 500, FXI, Dollar, USDJPY and Event Risk Discussion Topics:

  • Market perspective: USDJPY Bears below 146; EURUSD Bulls above 1.0000; gold Bears below 1,680
  • Three-day advance from Nasdaq 100 and S&P 500 may be reduced by Google’s disappointing earnings and the expectation of severe event risk
  • Leaving aside the abstract concerns of recession risks, there remains clear systemic currency pressure via USDJPY and the list suggests accelerating event risk: BOC, ECB and US GDP

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Google Tumble After-hours can reduce uneven risk

​​​​​​​Although the dynamics were insignificant and behind the rebound of risk-averse assets, the fundamental support was practically absent in the first half of this week, this information made an impression. Bullish trends often begin as simple anticipation of a bear market rebound and develop from there. However, the gravity-defying progress seems to have reached an unmistakably fundamental moment last session. Where the market has weathered a prolonged slump in home prices and a drop in the Conference Board’s consumer sentiment survey, Google’s surprise profit loss after the close in New York shook the speculative pillar. The FAANG member and fourth-largest market cap reported earnings per share of $1.06, versus analysts’ consensus of $1.25, on a similar miss of $69.9 billion in revenue (vs. expectations of $71.0 billion). The market fallout was clear, with GOOG shares down 6 percent in after-hours trading. Now the big question for me is, will the market view the performance of this particular stock as a reflection of the market as a whole?

Google Chart with Volume Overlaid on S&P 500 Emini Futures with 20-Day Correlation (8 Hours)

The chart is created on Tradingview platform

In terms of overall market performance so far this week, we have seen significant technical progress for the S&P 500 as a benchmark. The charge to 3800 represents a technical break that could enter the expected execution cycle. However, this index is again statistically “stretched” if we use the three-day rate of change as a metric. The “bear market” in 2022 usually ends when the period reaches the 5 percent market. It’s possible that “this time could be different” if the fundamentals really improve or the speculative appetite really benefits from complacency. There is still strong expectation that event risk will move forward (more FAANG earnings, US GDP, PCE deflator, next week FOMC decision, etc.), but the goodwill during the calm environment was violated. GOOG’s reverse head and shoulders pattern disrupted rather than completed the traditional structure. Perhaps Apple’s results could stabilize the outlook for the tech sector, but that’s not a possibility until Thursday after the close.

S&P 500 chart with 20- and 50-day SMAs, volume and 3-day volatility (daily)

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The chart is created on Tradingview platform

Dollar is down, but USDJPY and USDCNH continue to suffer

As US stocks lead a broader mix of risk assets, there is a clear pullback from the safe haven US dollar. It won’t stand out as a complete collapse from multi-decade highs for the world’s most liquid currency, but the breakout is technically significant. We see this move translating into key pairs such as EURUSD (breaking 0.9900 and moving to parity) and GBPUSD (which also contributes to the confidence that has come from the formation of the government) but the same degree of intent is clearly absent for the USDJPY. The pair has turned into a macro lightning rod with a charge to 32-year highs and a very public refusal by Japan’s Finance Ministry and the Bank of Japan to intervene on behalf of the struggling She. ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​a down, with it, as the dollar has weakened and Japanese authorities have tried to intervene on Friday to tap into $30-37 billion of thin liquidity, USDJPY is still refusing to capitulate. This is problematic for those who try to take this cross away from the basics.

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USDJPY Chart Overlaid with DXY Dollar Index and 20-Day Correlation (Daily)

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The chart is created on Tradingview platform

While USDJPY remains one of the most interesting macros for me going forward, it is not the only oddity in the most liquid currents of the financial system. Another critical issue remains USDCNH. The dollar-to-Chinese yuan exchange rate has refused to retreat significantly from highs above 7.30, which are unprecedented since early 2008, when we were still using indicative prices for offshore currency. It’s entirely possible that this disparity is by design – or, more charitably, “help” – as a means of combating US sanctions with cheaper Chinese exports. However, it is unlikely that local officials want the assets in the capital market to continue a serious struggle. However, this is what is happening both for external ETFs like the FXI and for the Shanghai Composite itself.

FXI Chart of iShares China Large Cap ETF Overlaid on Inverted USDCNH with 5-Day ROC (Daily)

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The chart is created on Tradingview platform

Eventual risk will become higher starting with the BOC rate decision

As we head into Wednesday’s trade, it’s important to keep an eye on the market’s priority. General concerns about issues such as the risk of a recession are a constant concern of mine, but for the broader speculative ranks they may not be a pressing concern. Looking ahead to the next 48 hours, it is important to prioritize what needs to be released. For example, my expectations for Meta’s (née Facebook) earnings were seriously lowered after the close given that Apple will be reporting the next day. The US data is important, but it’s just being canceled out given the potential impact given the planned Q3 GDP release on Thursday. Could this data throw some unexpected shocks that could lead to an unforeseen trend? Undoubtedly. But it is not something that seems practical to assume will come.

The risk of a critical macro event in the global economic calendar for the next week

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Calendar created by John Kicklighter

The top item on my radar for Wednesday will be the Bank of Canada’s (BOC) rate decision. All in all, this is one of the most hawkish central banks among the major banks, which will contrast more with the dovish behavior of the Bank of Japan. With the expected rate increase of 75 bp. that would be an impressively hawkish development; but consequences for likes USDCAD will be deterred by the prospect of something similar from the FOMC next week. The smaller the forecast for the relative gap in monetary policy between currencies, the greater the burden it can be, leading to significant development of this fundamental line. However, the same contrast perspective can lead to a more responsive one CADJPY answer The cross is still closely correlated with the yield differential, so the exchange rate can be significant here.

CADJPY Chart Overlaid on Canada-Japan 10-Difference (Daily)

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The chart is created on Tradingview platform

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