Stocks stall ahead of ECB, Fed pulls BTFP

Europe and the Euro 

European shares were a tad soft early on Thursday ahead of the European Central Bank meeting, though no major change is expected. The Euro Stoxx 50 index had closed at its best level since 2001 on Wednesday. The FTSE 100 is holding the 7,500 handle and the DAX remains clear of 16,800. US stocks were mixed in the prior session with the Nasdaq rising a touch and the Dow Jones sliding a quarter of a percent. The euro tried to make a bold move yesterday but was slapped back down. If Lagarde sticks to a very data-dependent message then it could see some upside but a clear signal on cuts in the summer might see eurusd reverse further towards the 200-day line at 1.0844. 

Tesla 

Tesla shares skidded 6% after-hours following soft earnings – revenues +3% and auto revs +1% were below estimates. The company also warned that vehicle volume growth in 2024 “may be notably lower” than last year’s growth rate. Margins were a big concern going into the earnings and did not offer much for bulls to cheer. Operating margin for the quarter were cut in half at 8.2% from 16% a year before. Musk went all protectionist and warned that "if there are no trade barriers established, [Chinese car companies] will pretty much demolish most other car companies in the world".  

ECB Day 

No change expected but we have had some mixed commentary from senior ECB officials that will need to be ironed out a little, though whether Lagarde is actually going to clarify things or not is an open question for any meeting. Lagarde won’t want to tie herself to a date, though she has indicated a cut may come in the summer. Certainly it appears that the spring is becoming less likely and markets only now price in about a very slim chance of a cut in April, though the market is still confident of around 140bps of cuts over the course of the year. She will want to stress that the ECB is data-dependent, likely facing upside risks to inflation from geopolitics and wages, downside risks to growth outlook. The uptick in inflation in December provides ample cover for the ECB to hold fire and signal that it’s not rushing to a cut at the next meeting.   

 Elsewhere Today 

Today look for how banks handle the Fed’s announcement last night that the Bank Term Funding Program (BTFP) will cease making new loans as scheduled on March 11th. This was the programme that the Fed launched last spring during the regional banking crisis to shore up the liquidity needs and ensure the stability of the banking system. It means banks won’t be able to get a free ride by borrowing at the BTFP window and parking the money at the Fed...how do bank stocks react today on this news? We are also waiting on weekly unemployment claims from the US, seen ticking up to 199k but hardly suggesting things are getting tough out there. Durable goods (core seen at +0.2%) also on the tape, whilst Q4 GDP is expected to show 2% seasonally adjusted annual growth, down from 4.9% in the third quarter.   

Oil Looking Bullish 

Crude oil broke to the upside of the wedge after a huge EIA draw – 9.2m barrels last week though this was impacted by the weather. Fitch says to be cautious, noting that “without material disruptions to actual oil production, or a wider escalation of attacks to more vital oil transport routes .. we do not expect a strong upside to our USD80/bbl Brent price assumption .. as there is material OPEC+ spare capacity.”  

 Momentum still appears constructive for bulls with the break clear of the 50-day SMA out of the wedge formation, now facing resistance at the 38.2% Fib level.