Europe
Gravity took hold of European markets on Tuesday after several days of huge gains inspired by the beginning of a quantitative easing program by the European Central Bank. Banking stocks led the declines in a delayed reaction to the risk posed by their Greek counterparts on a possible Grexit.
After making a new all-time high just above 10,850 on Monday the German DAX capitulated on Tuesday falling as much as 200 points led by disappointing earnings from Siemens.
The Siemens AG NA (MILAN:SIE) miss was in large part thanks to its power and gas division. As earnings reveal winners and losers from the drop in Oil prices, for now Siemens falls very much in the latter camp.
UK
UK markets were hit by broad-based selling on Tuesday after UK growth estimates slipped in the fourth quarter with banks leading the declines under threat of a looming crisis in Greece spreading across the financial system.
The FTSE 100 index undid gains from the previous session and is at risk of putting in another top just shy of the 6,900 level that has been holding back advances since May 2013.
The first estimate of UK GDP growth in the fourth quarter has come in at 0.5% year-over-year; bringing 2014 annual growth down to 2.8%. The slowdown in Europe is starting to take hold in the UK as inflation and now growth falls back thanks to the strong trade ties between the two.
Airlines were top performers for a second day after Aer Lingus (IR:AERL) management accepted the bid from International Airlines Group (LONDON:ICAG) leaving it up to major stakeholders including Ryanair Hldgs (LONDON:RYA) and the Irish government to give it the green light.
Afren shares collapsed on Tuesday adding to what was already one of the ugliest price charts in the city after the oil producer announced the need for capital in excess of its market capitalisation. Suspicious payments from executives and falling oil prices have proven too much and it now looks like Afrens days are numbered.
US
It was not just the snow storm in New York sending the shivers down the spines of US investors on Tuesday after a big miss in durable goods orders and disappointing company earnings sent major indices dropping like stones.
Caterpillar Inc (NYSE:CAT) alone took 30 points off the Dow Jones industrial Average which opened 300 points lower after reporting earnings before the open that missed already lowered expectations.
A big drop-off in oil services capex sent Durable Goods further into reverse in December while consumer confidence painted a very different picture flying to 102.9 from 93.1 the prior month.
Microsoft Corporation (NASDAQ:MSFT) had already set the stage for disappointment overnight after it offered a weaker outlook for its software business. Microsoft beat earnings estimates and announced a share buyback scheme of $30bn which is larger than previous years although perhaps not quite as aggressive as some had called for.
Software-licensing is Microsoft’s largest source of revenue which had a boost from a PC upgrade cycle resulting from the end of the company’s support for the Windows XP operating system. As that cycle ends, CEO Satya Nadella who has now been in the job one year needs to accelerate the move into cloud-based services to make up the deficit.
FX
The disappointing durable goods data sent the US Dollar lower across the board on Tuesday.
The oversold position of GBP/USD meant the disappointing UK GDP data didn’t hold the sway it otherwise could have and ended up being a buy the fact situation. The big miss of US durable goods added to the rally in sterling.
EUR/USD is back testing the November 2003 low from the downside after crashing through it just a few days ago as shorts get covered from the last ECB meeting.
USD/JPY has fallen back to the bottom of its 150 pip range at 117.30, whether dollar weakness continues will largely rest on tomorrow’s FOMC meeting.
USD/RUB saw the ruble weaken back to 68 after Standard and Poor’s cut the country’s credit rating to junk; this comes as violence appears to be escalating between the Ukrainian army and Pro-Russian rebels in eastern Ukraine.
Commodities
Gold and Silver saw a renewed bout of safe-haven flows on Tuesday as prices unsurprisingly oscillate ahead of the fed meeting tomorrow.
Oil prices were modestly higher on Tuesday thanks to dollar weakness which added to the bullish comments from the head of OPEC.
After a second huge reversal from $2.45 per lb; Copper prices plunged again as sellers came back into the market on Monday thanks to an apparent growth slowdown in the UK and perhaps one to come in the US.
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