Risk assets rebound ahead of Microsoft and Tesla earnings

If the above earnings meet or better expectations, then expect the major indices to remain supported...

As suspected earlier, risk assets have indeed turned higher after earlier being hit by profit-taking. Both the Dow and S&P turned positive and Nasdaq pared its earlier losses. The dollar meanwhile has resumed lower, allowing the EUR/USD to hit 1.16 for the first time since October 2018. Consequently, gold hit a new high on the year and silver extended its sharp overnight gains before easing off a little from the highs.

Investors will be watching upcoming earnings, including from tech giants Microsoft and Tesla:

Microsoft is due to report quarterly earnings on Wednesday after the close of play. The expected EPS is $1.34, with revenues seen rising about 8% to $36.5B compared to the same period a year ago. The software giant is amongst a handful of companies that is expected to reveal sales growth during the pandemic-hit quarter, driven by increased demand for its cloud services of Azure, Office 365 and Teams. Expectations over increases sales has led to a strong rally in stock price, soaring from below $135 in mid-March to an all-time high of $208. Year-to-date, the stock was up 33%, which is a sharp contrast to the S&P 500 which is flat on the year.

Tesla will report its earnings after the close tonight, so expect a substantial move in the stock price in after-hours trading. The expected revenue for the quarter is $5.1B, a year-on-year decrease of 18%. Despite its massive share price rise, Tesla is expected to show a loss for the quarter, with an EPS of -$0.02. The electric car maker remains far ahead of competition in the number of superchargers and self-driving technology. Tesla’s share price has quadrupled since mid-March as there is sustained enthusiasm about the company’s ability to generate profits with expected EPS of $11.77 for 2021. But will live up to the high expectations?

The fast food chain Chipotle Mexican Grill, better known as simply Chipotle, will also report its earnings after today’s close. The market remains confident about Chipotle’s future with the shares hitting repeated all-time highs, despite the economic impact of Covid-19. The expected EPS is $0.35, down from $3.99 in the same period last year, while revenues are expected to fall to $1.3B down from $1.4B last year.

If the above earnings meet or better expectations, then expect the major indices to remain supported. However, with both Microsoft and Tesla shares significantly outperforming, there is a risk for profit-taking even if their earnings were to beat expectation slightly. Also watch gold and silver as they test multi-year highs, which could have implications for equities and some FX pairs such as the Aussie dollar. But the immediate focus should be on the above earnings and the tech-heavy Nasdaq 100: