Big tech earnings kick-off – Daily Market Brief, October 25, 2022

Microsoft and Alphabet will kick off big tech earnings. Earnings from the blue-chip technology firms will be used as a barometer of the health of the wider consumer economy. Positive sentiment could be tested.

·         Bets are rising that the Fed’s dovish pivot could be approaching, helping stocks higher.

·         Dax is set to rise ahead of German IFO business climate data

·         Microsoft Q1 earnings are expected to post the slowest revenue growth in 5 years

Stocks in Europe closed higher on Monday, despite dismal PMI data, which added to evidence that the region was heading into a recession. Instead, investors cheered Rishi Sunak winning the leadership race to become PM. Following on from Liz Truss’ chaotic 44 days in power, Sunak is considered by the markets the more fiscally prudent candidate, best equipped to lead the UK through the deteriorating economic outlook. Gilt yields fell to 3.7%, and the FTSE closed 0.6% higher, back over 7000.

Stocks on Wall Street also posted solid gains following comments from San Francisco Federal Reserve President Mary Daly. This fueled speculation that the US central bank could be approaching a point where it is ready to ease off aggressive hiking. While a 75 basis point rate hike is priced in for November, expectations are softening towards a 50 basis point hike in December. The S&P500 closed 1.2% higher and the Dow Jones 1.35%. While yields on the 10-year treasury fell, they remain well over 4%, suggesting that there are still some doubts over whether a dovish pivot will be coming soon.

The upbeat close on Wall Street translates to a positive opening in Europe. The DAX is set to open 0.3% higher, just below 13000.

German IFO business climate

On the data front, German IFO business climate figures for October will be in focus and are expected to fall further after hitting a two-year low in September. The business climate is expected to fall to 83.3, down from 84.3 as surging energy costs continue to hit industry and as the worsening cost of living crisis hits consumer demand.

In the US session, consumer confidence is due to be released and is expected to soften slightly to 106.5 in October, down from 108.

Big tech earnings

However, the main focus will be on US earnings which will ramp up significantly from today. Big tech earnings will kick off with Microsoft and Alphabet and could shed some light on the health of the consumer. In addition, big names such as VISA, UPS, Coca-Cola, and General Motors will also be updating the market. So far, earnings have fared better than expected, especially for the banks. This is partly due to analysts’ earnings estimates being downwardly revised amid forex headwinds and growth worries. This could, in fact, set stocks up for rallies on better-than-expected earnings.

Microsoft

Microsoft Q1 earnings are due after the bell. The tech giant is expected to post its slowest quarterly revenue growth in 5 years as PC sales slow and on FX headwinds as the USD rallies. Consumers and businesses are spending less on computers and laptops as inflation rises, hurting sales of key products. Furthermore, Microsoft earns 50% of its revenue outside of the US, so the 17% rally this year in the USD will be very unfavorable. Expectations are for Q1 revenue of $49.61 billion, a 9.5% rise. EPS is expected at $2.30. Can Microsoft maintain full-year 2023 guidance?

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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