The earnings season for US companies beat the analysts’ forecasts

By: Miguel A. Rodriguez

12:09, 21 July 2022

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Yesterday, Tesla published a quarterly revenue of $16.93 bln and an EPS of $2.27, well above the $16.52 bln revenue and $1.82 earnings per share expected by the market

The stock was up 3% after the session closed.

 

Despite the promising results, gloomy expectations haunt the market for a significant decline in corporate earnings amid a sharp slowdown, and falling demand is slowly fading.

 

However, Wall Street indices had another day of gains, of 1.55% in the case of the technological Nasdaq. More significant is that technically, they are beginning to give very positive signals, surpassing technical reference levels.

 

Nasdaq has already broken above the 12.233 level, which is the 0.618% Fibonacci retracement of the bearish leg that started in early June. It is now heading towards the 12,947 area, the previous high that marked the point above which the bear market started earlier this year would technically end.

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Now, all this movement contributes to better investor risk sentiment. On the one hand, inflation expectations have fallen sharply; as figures from the University of Michigan showed last week, commodity prices have dropped, in some cases, to pre-crisis levels. Also, interest rate hikes of the Fed are already touted in the market with a certain possibility that interest rates as high as anticipated will not be necessary.

 

But today, all attention will be on the European Central Bank meeting. The European indices fell yesterday in anticipation of this event. Unlike the Federal Reserve, the ECB faces a more complicated situation. Without changing interest rates yet, the ECB is under pressure to abandon an excessively accommodative monetary policy, zero interest rates, with the highest inflation in recent decades. The Euro threatened to lose parity with the US Dollar and drop to historic lows.

 

The ECB needs firm action to calm the markets; a 25-bps hike is probably not enough. But to start with 50-bps hikes, it must first convince the markets with specific measures to prevent peripheral country bonds from suffering. Investors sell them strongly, and the spread between their yields and the German bond (which is taken as a reference) is widened above what is usual.

 

If this were to happen, it would be seen as a European debt crisis, and the Euro would again be under high pressure.

Everything is in the hands of the ECB at its meeting today. Proper communication to the market and firm decisions that inspire confidence will be the key to avoiding turmoil in the market.

 

Sources: Bloomberg, Reuters

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