European stocks are modestly in the green this morning after the US markets eked out fresh record highs. Cyclicals beat defensives while small caps outperformed large caps with energy, financials and materials leading the gains. Asian markets are slightly lower overnight, but the major markets are ticking over quietly ahead of tomorrow’s FOMC meeting and US company earnings.

Crunch time for earnings season

Of the 130 companies that have released so far, 85% have reported results above analysts estimates. While markets made new highs overnight, all the focus is now on the next few days with roughly 40% of the entire S&P500’s market cap reporting from today through to Thursday, including of course Facebook, Amazon, Apple, Microsoft and Google.

The latter two tech titans are next up, reporting after the close today. Microsoft is expected to show 17% sales growth y/y and EPS up 26% y/y driven by strong demand for cloud services and a rebound in IT spending. Work-from-home will also continue to underpin revenues with any new guidance around gaming likely to pique the interest of analysts.

Google EPS is expected at $18.26, an increase of 72% y/y as the ad business fully recovers after the early disastrous months of the pandemic. The key question for Google fans will be whether other tech firms like Facebook, Amazon and Snap are gaining more advertising business at the expense of Google.

Both technical charts look very similar with healthy consolidation near the peaks, after breaking higher at the start of the month.

USD holding on

The dollar has started the week in positive fashion after hitting multi-week lows first thing yesterday. Disappointing durable goods data was overlooked as orders are still up in 10 of the past 11 months and the strong shipments have been a good sign for first quarter GDP, which is released on Thursday. The 100-day moving average will act as resistance above at 91.05 but traders are expecting a quiet session ahead of tomorrow’s Fed meeting. Joe Biden’s first speech to a joint session of Congress will also be a focus, as the new President fleshes out his plans to raise taxes, including a doubling of the capital gains tax for those wealthy earners.

The mid-March lows at 91.31 held prices on DXY last week. Any confirmation by President Biden of more taxes, plus an accommodative Fed may put more downward pressure on the greenback and push the index towards 90.

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