Markets await ECB meeting, as Red Sea and Tesla concerns dent sentiment

• European markets dip ahead of ECB meeting
• Red Sea disruptions continue, with energy markets heading higher
• Tesla slump to hit market sentiment, with Visa hoping to provide a more upbeat assessment today

European markets are moderately lower in early trade today, with traders remaining cautious ahead of this afternoons ECB meeting. Coming in a week that has seen plenty of conjecture over the direction of the eurozone, the outlook over the German economy took another hit as their chief leading indicator (Ifo) fell to the lowest level since mid-2020. Thus far we have seen the ECB holding steadfast in the face of a contracting economy and falling inflation. While today’s meeting looks likely to reiterate their patient data led approach, the bank will soon have to start guiding markets over the likely impending pivot given that we have seen inflation tracking well below target for the past eight months.

Red Sea disruptions continue to pose considerable inflation risks as attacks continue in the region, with mining giant BHP now opting to divert their ships away from their typical route. With WTI heading into a one-month high, we are finally seeing energy markets wake up to the distinct possibility that these supply chain disruptions will rumble on for months yet. With Maersk turning around boats that came under fire despite a US Navy escort, the prospect of a military solution to ensure safe passage looks unlikely. For energy giants Chevron and ExxonMobil, a potential uplift in crude prices could lift the recently depressed sentiment ahead of their earnings next Friday. Unfortunately, the prospect of a resurgence in energy prices does raise questions over the possibility of a fresh uplift in inflation which could in turn dampen market sentiment.

Tesla look set to provide a dampener on market sentiment for the S&P 500 at the open, with the EV giant expected to open 7% lower thanks to a miss on both earnings and revenues. Coupled with a downbeat assessment over the health of demand for the year ahead, we have seen stocks across the entire sector head lower. Bulls will hope that payment giant Visa will provide a more upbeat assessment today, with the company heading up another busy day that also sees the likes of Intel, T-Mobil, Comcast, and ServiceNow report. While many companies have struggled to balance margins and demand under the weight of rising inflation pressures, Visa look to provide a great example of a business that directly benefits from higher prices as the value of their transactions have grown over recent years. With 2024 expected to see central banks unshackle the economy by driving down interest rates, investors are looking for a fresh boost to Visa’s earnings and revenues throughout this year.