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Another day, another wild ride. Stocks in the US remained hugely volatile on Tuesday, plunging and rebounding to finish down but well off the session lows. The S&P 500 closed down 1.2%, or 54pts, but some 70pts above the intraday low. The Nasdaq slumped more than 2% but it too tried to stage a late rally. Neither hit their intraday lows from Monday.

The FTSE 100 rallied 1.6% in early trading, adding to yesterday’s 1% gain and taking it back to the 61.8% retracement of the recent slump. Shares across Europe rose despite the wobbles on Wall Street – worries about tech and such not so pressing for European cyclicals. Travel stocks are higher with IAG, InterContinental and Whitbread leading the blue chips, only one or two defensives in the red.

Shares in Microsoft fell over 2% ahead of earnings which beat expectations. The stock turned higher in after-hours trading as management issued a sales forecast that was better than expected. The stock is down 14% this year…could this be the Netflix antidote and help relieve the worries in the tech space?

Of companies reporting so far, only about a third have raised their outlook which is lower than it should be. Lower earnings growth + Fed hiking = not just multiple compression. Lower multiples + lower earnings growth than expected is one of the factors behind the declines in the stock market but it’s only part of it. Tesla earnings due tonight.

Data yesterday was not exactly bullish: Richmond Fed consumer confidence lower, but better than expected. Mfg down to 8 from 16, services 4 vs 12 previously. Not the healthiest of readings…stagflation numbers. Spain’s December producer prices rose by 35.9%….and the ECB’s Lane says the central bank will act if it thinks inflation is getting out of control…

Only game in town today is the FOMC meeting so expect traders to keep cards close to their chests. Could the Fed end QE early – seems crazy to be talking up rate hikes and QT whilst still expanding the balance sheet. That would amount to a hawkish surprise but one the market would probably be ok with. It’s unlikely that the Fed would let slip any concerns about the rollercoaster in equity markets since credit has been ok – the Fed has to fight inflation first. It’s all about fighting inflation and the Fed needs to lean on that now, given it’s already way behind the curve. Another hawkish surprise could be to talk up the prospect of a 50bps hike in March – it is not thought the Fed will go early and hike today.

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