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Early Morning Call: USD strength continues; Twitter to sue Musk; US earnings season

USD/JPY at new 24-year high; parity for EUR/USD now just 1½ cents away - could data this week bring it 1-1? Twitter hires legal firm to force Musk on acquisition deal or pay $1bln break fee. And indices on the way down in Europe.

Indices outlook

There was a mixed start to the week in the Asia-Pacific region.

Hong Kong’s Hang Seng was the worst performer as China-imposed fines on several companies that failed to comply with anti-monopoly rules. Japan led gains in the region as the country’s ruling coalition is set to reinforce its majority in the upper house of parliament, according to NHK.

Last Friday the Dow and S&P 500 ended lower, but the Nasdaq 100 rose for a fifth day, its longest streak since November 2021.

Equity markets in Europe opened lower. A couple of central banks will decide on rates this week, both on Wednesday 13th.

The Reserve Bank of New Zealand (RBNZ) is expected to hike by 50 basis points (bps) to 2.5%, back to levels not seen since 2016. The RBNZ was among the first central banks to start hiking rates. Up to October last year, the bank's official cash rate was at 0.25%. This expected rate hike will be the sixth in a row.

Then later on in the day, it's the turn of the Bank of Canada (BoC). It began its hiking process a bit later but ranks as one of the highest rates in the world's main economies. Economists see a rate increase of 75 basis points, which would take the bank's overnight rate to 2.25%. Up to January this year, the BoC 'srate was at 0.25%.


EUR/USD is trading near two-decade lows.

Later this week, the pair could react to the release of US consumer price index (CPI). Economists expect it to rise by 8.8% in June on the same month a year ago, a pace not seen since December 1981.

US earnings season

US earnings season starts officially this week and, as ever, the banking sector gets the ball rolling.

JPMorgan and Morgan Stanley will publish their quarterly report on Thursday, and Citigroup , Wells Fargo, BNY Mellon on Friday.

Bank of America and Goldman Sachs then pick up the baton on Monday next week.

Outside the banking sector, PepsiCo will report on Tuesday 12th. Later this week the market expects publications from Delta Air Lines, ConAgra Brands and UnitedHealth .

Earnings in the US are expected to rise 4.1%, which would be the lowest rate of growth since the fourth quarter (Q4) of 2020. Revenues are expected to rise 10.1% compared to a year earlier. As for negative guidance, they should be on the rise. With soaring inflation and the pressure it puts on profit margins, bleak expectations about economic growth and consumer spending, 71 firms are expected to announce negative earnings guidance.

Twitter will gather a lot of attention today. On Friday, Tesla CEO, Elon Musk, said he planned to walk away from his deal to buy the social media platform, arguing that it had failed to provide enough information to prove that the number of fake and spam accounts on its platform stands at less than 5%, as it has long estimated.

Over the weekend, Twitter announced it had hired law firm Wachtell, Lipton, Rosen & Katz as it prepares for a legal battle either to force Musk to proceed with the $44 billion deal or pay the $1bln break fee.


Oil prices are little changed this morning.

Last Friday, Baker Hughes total rig count rose by two to 752. But after last week's drop, rig count remains below its level from a fortnight ago.

Last week's rise was entirely due to the increase in oil rigs in operation, up by two to 597. The number of working gas rigs remains at 155.

In Europe, Nord Stream 1, the pipeline that carries Russian gas to Germany, is due to stop operating today for the next ten days. This is a scheduled annual maintenance, but markets and governments fear the shutdown could last longer because of the war in Ukraine.

Traders will be attentive to the price of lumber, as the commodity recorded a second week of strong gains, and was the best-performing asset amongst indices, FX and commodities.

Is that just a respite, or the start of a longer period of strength for the commodity? The recent two-week recovery comes off the back of a long period of seasonal decline, but crucially not below the key $460 support level established in August 2021.

Besides, with the price now on the rise for the past four weeks, there is a strong chance we have seen the bottom established here.

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