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Apple destroys market expectations

Five key markets in focus today.

Apple

Apple has destroyed market expectations in its quarterly earnings report and the stock has rallied 7.8% in the after-market. Q2 EPS came out at $11.62, a modest 14% above expectations. Gross margins at 39.3% were better, while Q2 revenue was also much better. The company has announced a seven-for-one stock split and also boosted its buyback to $90 billion. One thing the market has picked up on is that Q3 revenue projections (at $36 to 38 billion) are in-line with market expectations, while its cash pile has fallen $8 billion to $151 billion – the first drop here since 2011.

GBP/JPY

There is a very well defined downtrend drawn from the 2014 high of 174.84 and until we see a daily close above this level, I would stay neutral on this pair. From a view of central bank policy divergence, I would favour being long and if you smooth out the price action by placing a 21-day moving average on the chart you can see a modest uptrend in place. Still, until I see a close above trend resistance, which currently comes in at 172.78, then I will stay on the sidelines. Stochastic indicators are above 80 and starting to top out, so caution is certainly required.

Caterpillar (CAT)

Caterpillar are one of the few companies globally that report earnings that can have implications on other asset classes. With good exposures in emerging markets (notably China), commentary around these geographies can have implications on asset classes such as currencies or Australian bonds. The market currently expects Q1 EPS of $1.23 and interestingly it has missed in four of the last five quarters, although the market generally looks at commentary more importantly, with the stock rallying five of the last seven earnings reports. Revenue is expected to print $13.11 billion.

EUR/AUD

This is a really interesting pair to look at right now as the market continues to second guess both the RBA and ECB. After yesterday’s lower-than-forecast Australian Q1 CPI print we saw the pair rally to a high of 1.4923. I looked at buying the pair (https://www.ig.com/au/forex-news/2014/04/14/central-banks--movements-affecting-currencies-15689) on a break of the downtrend (on the hourly chart), which at the time was at 1.4810, however the trend gave way on April 15 at 1.4754 and this was my trigger for long positions. It was also positive to see the pair find good support on a re-test of the former downtrend. At 18:00 (AEST) we get the German IFO report and the market is expecting a modest decline in this survey, with the expectations sub-index falling from 106.4 to 105.8.

Horizon Oil (HZN)

HZN rallied 10% yesterday on good volume and there has been talk in the AFR that it is in talks with a potential buyer. This is one to keep an eye on.

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