Wednesday saw a back-and-forth session for traders grappling with the challenge of rising US yields amid encouraging earnings reports. However, late-hours trading witnessed a downturn in the S&P 500 as major tech stocks, including Meta Platforms Inc., experienced a sell-off. Meta's disappointing outlook cast doubt on whether the market's enthusiasm for artificial intelligence, which has been a key driver of the bull market, may have reached excessive levels.

Meta's first-quarter revenue of $36.5 billion, marking a robust 27% increase year-over-year, was a notable achievement. The company also saw profits more than double to $12.4 billion, translating to earnings per share of $4.71. While this performance slightly exceeded analysts' expectations for revenue, the real focus was on forward guidance, notwithstanding the fact the market is a perpetual forward-looking machine. Unfortunately, the forward guidance dampened investor sentiment, leading to a downturn in the broader market.

Meta's announcement that capital expenditures would exceed initial expectations and a slightly lower revenue forecast than anticipated contributed to investor concerns about the company's future performance. The divergence signalled potential challenges ahead, prompting investors to reassess Meta's growth trajectory and overall outlook.

Meta's quarterly report didn't contain any surprises, but the focus was on meeting exceedingly high bar expectations. Given the significant benchmark it faced, it's doubtful whether the company managed to clear those lofty expectations today.

I use the expression “ today” as these corporate giants have indeed become indispensable in our daily lives, serving as pillars of the global economy. Their financial performance is closely watched, and the bar for success is always set high. While occasional fluctuations may occur, they are typically minor blips in the broader context of their consistent growth and innovation.

Investors are bracing for significant macroeconomic challenges ahead, particularly with the release of first-quarter gross domestic product (GDP) data on Thursday and March's personal consumption expenditures (PCE) on Friday. The unexpected surge in consumer price inflation for March has shifted expectations regarding the timing of potential interest rate cuts by the Fed.

The critical question now is whether the release of hotter-than-expected data will narrow the 2024 window for rate cuts even further, potentially triggering another downturn in the market.

Oil futures closed lower on Wednesday following the release of data from the Energy Information Administration indicating weak demand for gasoline among U.S. consumers.

The USD/JPY pair breached another apparent "line in the sand" at 155 without so much as a price check from the Bank of Japan ( BoJ This raises questions about what truly constitutes the price threshold for intervention.

When it comes to MoF intervention, it's not necessarily a specific level but rather the intensity and unwarranted speed of the JPY sell-off.

If the USD/JPY pair is trending steadily higher amid rising US yields, market participants may view threats of intervention as lacking credibility.

The upcoming BoJ meeting on Friday adds to the uncertainty surrounding the JPY market's near-term direction and the potential timing of intervention.

Historically, Japanese authorities have intervened in the currency markets in response to certain unruly market triggers. Still, the dollar rally has been board-based, and while the USDJPY has been the weakest link in the G-10 chain, it could be considered warranted due to massive interest rate differentials in the dollar's favour.

Despite indications that intervention may be on the horizon, evidenced by the joint Japan-Korea-United States statement expressing concerns over currency depreciation, market sentiment appears unfazed. Significant levels in the currency markets have been breached with relative ease, suggesting that investors are showing little apprehension towards potential intervention concerns so far.

Tokyo desks are currently on high alert for any signs of intervention ahead of Friday's BOJ meeting, waiting for the “BOJQ on 20 million pls” to come through on the direct dealer machine.

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SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.

Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.

Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.

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