Big tech disappoints – Daily Market Brief, October 26, 2022

Nasdaq futures are paring yesterday’s gains after Alphabet and Microsoft kicked off big tech earnings on the wrong foot. Alphabet missed on revenue and earnings, while Microsoft’s guidance missed the mark.

·         HSBC dragged the FTSE lower after a larger-than-forecast impairment charge

·         Fed dovish pivot bets are rising after a string of weaker-than-forecast US data

·         BoC is expected to hike rates by 75 bps; could this be the final outsized hike?

The FTSE underperformed its European peers on Tuesday after disappointing results from HSBC. Europe’s largest bank by assets saw profits slide 42% and reported a larger-than-expected impairment charge. Today Barclays will be under the spotlight with a similar focus on impairment charges linked to the weak economic outlook and on its investment banking operations.

Stocks on Wall Street ended the session firmly higher, while bond yields and the USD slumped. Weak housing data and consumer confidence falling to the lowest level in 3-months raised speculation that the US economy is starting to cool and that the Federal Reserve could slow the pace of rate hikes after the November meeting. According to the CME Fed funds, the market now considers a greater possibility of a 50 basis point hike in December rather than 75 basis points, which was previously expected. This goes hand in hand with comments from San Francisco Fed President Mary Daly earlier in the week.

The Nasdaq closed 2.25% higher, booking gains of over 5% over the past three sessions. However, Nasdaq futures are heading sharply lower today following the release of mixed earnings from Microsoft and Alphabet after the closing bell. Europe is also set for a weaker start on the open.

Alphabet

Alphabet missed expectations on both top and bottom lines, which perhaps isn’t that surprising after Snap’s disappointing numbers.  EPS was $1.06 against $1.25, expected on revenue of $69.09 billion against $70.58 billion. Revenue growth slowed to just 6%, down from 41% a year earlier. Ad revenue was $54.48 billion, below expectations of $56.98 billion. The figures show that no company is immune to the slowdown in ad spending. Alphabet trades 7% lower in extended-hours trading.

Microsoft

Microsoft managed to surpass earnings and revenue expectations but trades 6.6% lower in extended hours after cloud revenue fell short of forecasts and after quarterly guidance disappointed. Microsoft reported EPS of $2.35 per share, above the $2.30 forecast, on revenue of $50.12 billion versus $49.61 billion. Concerning guidance, the tech giant forecast $52.35 -$53.35 billion in revenue in fiscal Q2, well short of the $56.05 billion analysts expected. The results weren’t a complete surprise as the cost of living crisis results in materially weaker demand for PCs, a trend that is likely to continue.

BoC rate decision

The BoC will meet today to discuss its monetary policy and is widely expected to announce another 75 basis point rate hike, its fifth straight jumbo hike. The move will take the benchmark rate to 4%, a level that was last seen in 2008. The move would keep pace with the Federal Reserve but also comes amid signs that Canada could be heading toward a recession. There’s a good chance that this will be the final outsized hike in this cycle amid growing concerns about the risks associated with higher interest rates. Speculation is also rising that the Fed could also reduce the planned size of rate hikes after next week’s meeting. USD/CAD fell 0.6% yesterday and is heading lower again today, dropping below 1.36 to a 3-week low.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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