Tech earnings and the Fed to test the fragile market sentiment

Fed meeting and earnings releases on the agenda today 

Risk appetite appears to be on the rise since Monday’s disastrous sessions in equity markets, as US technology stocks staged a solid recovery yesterday. The outlook, though, remains clouded as the AI battle is unfolding. Interestingly, Chinese tech company Alibaba announced that its AI offering outperforms both DeepSeek and US-based AI models, potentially provoking the ire of US President Trump.

The improved risk sentiment will be tested, as the Fed is scheduled to announce its rate decision later today, and technology giants Microsoft, Meta and Tesla are set to report their Q4 earnings. In the case of the latter, apart from the headline figures, the market will be paying extra attention to any signs of slowing growth in the AI divisions. These earnings releases come at a crucial time, as another acute price reaction cannot be ruled out if market participants feel disappointed.

No rate change is expected from the Fed today

Meanwhile, Chairman Powell et al are expected to keep rates unchanged later today. Since the December 18 meeting, data releases have been mixed, but definitely not disappointing and far from signaling an imminent slowdown. This is expected to be reflected in the statement and the press conference, though the markets are craving comments about Trump.

As per his appearance at last week’s World Economic Forum in Davos, President Trump is pushing for lower rates. This is what every US president is longing for, but the current president could be very persistent. Chairman Powell is unlikely to antagonize Trump, and instead focus on meeting the Fed’s dual mandate, while acknowledging that inflation rates remain elevated and the uncertainty regarding Trump’s trade strategy is increasing daily. The door for a March meeting rate cut is expected to remain open, with Powell avoiding any pre-commitment.

Today’s menu also includes a BoC meeting 

The Bank of Canada is expected to announce a 25bps rate cut today, with the market assigning a 95% probability to such an announcement. Macklem at el are ready to address the recent mixed data, but their true motivation for this move is the likely imposition of US tariffs. Interestingly, a stronger 50bps rate cut seems to be off the table today, as it would signal that the BoC is extremely concerned about Trump’s future actions.

The expected BoC rate cut is unlikely to result in a significant underperformance of the loonie against the US dollar. However, any post-BoC meeting moves will most likely prove short-lived, as market participants will immediately shift their focus to the Fed meeting.

Dollar recovery continues, crypto market experiences high volatility

The fragile market sentiment is benefiting the dollar, mostly against the euro. The ECB is scheduled to meet tomorrow, and another rate cut is priced in. The exact dovishness of the press statement and the press conference is debatable, but euro bulls may not be overly optimistic that Lagarde’s overall tone will boost the euro.

Meanwhile, both gold and cryptocurrencies continue to experience high volatility. Gold is hovering around the $2,750 level, with a likely correction on the cards if Powell appears hawkish today, and bitcoin has reclaimed the $100k level. There is a small consolidation taking place this week in the cryptocurrency market, with Solana giving up a decent portion of its recent gains.