LiveWire

The European Central Bank's first interest rate hike in more than a decade could come as soon as July, a prospect that is boosting the euro and European stocks. Four officials said in recent days that the ECB may raise its deposit rate from minus 0.5% early in the third quarter after ending asset purchases. Despite the deteriorating outlook, central bankers are looking to tame inflation in the eurozone, which is nearly four times the 2% goal. Signs of inflation cooling in the next few months could lead to officials reconsidering their hawkish views. In the meantime, money markets suggest traders are betting on three 0.25% ECB rate hikes by December. Investors look at the market in terms of "real rates", that is interest rates after considering inflation, which would still be negative even after several rate hikes. The Stoxx50 climbed 1.4%, to almost a 1-month high at EUR3'877. 

The price action on the S&P500 is quite encouraging and bullish so far this week. The fact the index held steady yesterday despite a heavy FANG member collapsing nearly 35% should make bears a bit nervous. And while everybody is blathering on about future uncertainty, the fear index is actually falling, now back near the 20 levels. Strong earnings and positive inputs from companies on the health of the economy are helping the index to hold up. Technicals indicate a resistance line at yesterday's high (4'480), should the price move above that level, bulls could take the index another leg higher.

Tech is leading higher with the Nasdaq100 up 0.45% in pre-market on overall upbeat earnings results. It is helping market sentiment recover. Earnings from Chip maker ASML Holding NV were particularly positive, beating forecasts slightly, sending the stock up more than 6%. Netflix earnings were disappointing but investors see this more as an isolated event as the streaming space has become more competitive and is a victim of difficult year-on-year growth comparisons versus the pandemic days and as a result of the loss of subscribers in Russia. All eyes will be on Tesla, which will post earnings after the market close, as it is the biggest name in the Nasdaq100 to report this week. 

AAII US Investor Sentiment showed the number of investors bullish on the markets falling significantly in the last two weeks as worries of a longer downturn in the stock market resurfaces. Investors are struggling to assess the chances of expectations of higher interest rates still rising from here. Data shows US government bonds are the most oversold in at least 50 years, and investors are not optimistic about prospects of inflation coming down anytime soon or of corporate earnings comforting markets. While growth expectations are coming down, after-market earnings of IBM and Netflix should offer some guidance on how well tech giants are coping in the current environment.

Despite all talk of aggressive tightening, US stocks including the tech-heavy Nasdaq is holding firmly. For the 4th session, buyers haven't hesitated to jump in to buy the dip every time the Index has dropped below the 14'000 level, representing a 15% drop year-to-date. Strong earnings are making it difficult for the bears, and technicals are signaling the index is willing to retest the 14'400 resistance before making any leg lower (if any).