One individual stock shouldn’t really matter but to me, FB is a bellwether stock as it appears in the Nasdaq and the benchmark S&P500. I have been calling the recent rally a Bear Market Rally, which is designed to suck in as many bullish latecomers as possible as the bears sell into them. The Metaverse earnings call is how I see the rest of the year going with earnings expected to drop as fiscal flows plateau and the increased taxation outweighs the spending bringing a halt to expansion. What we need now is for the Central Banks to also see this as a problem and not tighten monetary policy too fast.
Stock markets in Europe opened mixed on Thursday ahead of the European Central Bank's (ECB) latest interest rate decision and the Bank of England's (BoE) latest monetary policy report. Additionally, traders will be looking for updates in Germany, the Eurozone, and Britain's services and manufacturing sectors.
The funniest tweet I read last night was that the 'JPM downgraded Metaverse back to Facebook'. After the earnings report the FB share price in the extended trading hours dropped from $326 to $246 which is an 18% drop.
During the fourth quarter of fiscal 2021, Meta Platforms Inc. generated $33.67 billion in revenue, up 20% from the same period last year. In 2021, the company's diluted earnings per share dropped 5% year-on-year to $3.67 and its net income dropped 8% to $10.3 billion after falling 8% from the previous year's closing quarter.
The fiscal year 2021 ended with total revenues of $117.9 billion and diluted earnings per share of $13.77, up 36% from last year. From 2020 to 2021, net income increased 35%. The problem is not the earnings today it is what is happening in the future. CEO Mark Zuckerberg announced that users were on rival apps longer and as growth is stalling in FB and the attention is being put into the Metaverse, investors don't see great returns coming down the pipe in 2022.
The German DAX and UK FTSE100 have opened lower but I am expecting the US indices to drag everything down in the US session on the back of the earnings last night, unless we get some better-than-expected news out of the Bank of England and ECB today. The forex heatmap shows flows now returning to the US dollar and out of the Swiss franc, but everything else is mixed while we await the central bank decisions.
According to a report released by IHS Markit in the overnight session, Japan's service sector saw business activity and new orders decline in January because of the reinstatement of Coronavirus restrictions in 2022.
The seasonally adjusted Jibun Bank Japan Services Business Activity Index fell from 52.1 in December to 47.6 in January.
The disappointing Japanese data and the returning strength into the US dollar has helped the USDJPY once again find support around the 114.50 – 115.00 area. If we get back above the previous swing high the next logical target would be the upper bound of this rising channel and the 117.00 price level.
The Aussie is weaker this morning after an upwardly revised AUD 9.76 billion trade surplus in November, dropped to AUD 8.36 billion in December 2021. Exports decreased more than imports, resulting in the smallest surplus since March. This is not a good sign and commodities will be on the backfoot today.
Taking everything into consideration today, if the ECB is Dovish and the euro weakens that will add strength to the US dollar which will put more pressure on the commodity pairs. In that scenario, I see the current level as resistance as it was a previous balance area in the last week of January, and we probably won’t reach up into the 0.7200 levels of resistance. If the US dollar has the bids pulled from underneath it after the ECB today maybe the AUDUSD has one last push higher, but fundamentally this is a bear market rally for the Australian dollar.
We now await the Bank of England rate decision and won’t be trading until we are clear of the central bank's intentions.