Big tech & European banks start Earnings Reports – Daily Market Brief, July 26, 2022

Big tech & European banks start Earnings Reports

Earnings season ramps up with UBS starting the European bank’s results season. Microsoft and Alphabet will kick start big tech.

·         UBS kicks off European bank earnings in an underwhelming fashion

·         Microsoft will report Q2 earnings after the close with attention on the impact of a stronger USD

·         Oil rises as slowing Russian gas flows could prompt a switch to oil

Stocks in Europe are heading for a broadly lower start after a mixed finish on Wall Street overnight and as investors look ahead to the beginning of big tech earnings with Microsoft and Alphabet under the spotlight.

European and US bourses saw a relatively quiet and underwhelming start to what is set to be a busy week. The DAX underperformed its peers after dismal German IFO business sentiment data and warnings from the IFO institute that the eurozone’s largest economy was on the brink of recession.

In the US, the Nasdaq underperformed ahead of a big week for tech earnings and as the two-day Federal Reserve monetary policy meeting starts. Concerns over how a strong USD will impact earnings for the tech giants weigh on sentiment. A warning from Walmart that consumers are paring back spending as inflation surges saw the retailer slump 10% after hours, bringing Target and Amazon lower as well.

UBS

In Europe, the economic calendar is quiet, but earnings ramp up a gear with UBS kicking off major banks’ earnings in an underwhelming fashion. The Swiss lender posted a smaller than forecast rise in net profit to $2.1 billion as revenue in its investment banking business fell 14%. Expectations had been for a rise in profits to $2.4 billion. Later this week, Barclays and Lloyds NatWest are due to report.

Microsoft

Microsoft is due to release Q2 earnings after the close and is expected to post EPS of $2.29 on revenue of $52.4 billion. Microsoft reported EPS of $2.22 on revenue of $49.36 billion in Q1. In May, Microsoft warned that it was slowing hiring, and then in June, the tech giant warned about the impact of a strong and rising USD. The US dollar index was 102.00; today, it sits above 106.00. Cloud computing, led by Azure, is expected to continue to be the growth engine at Microsoft as companies continue to upgrade and digitalize their business. This also supports the demand for software and subscriptions. Bloomberg reported that Microsoft Azure, the cloud segment, has also cut job openings, which could be significant, suggesting that spending could be lowered in the coming quarter.

Oil

Oil prices are rising for the second straight day amid increasing concerns that Russia’s slowing supply of natural gas to Europe could prompt a switch to crude oil. Yesterday Gazprom announced that supplies through the Nord Stream 1 pipeline would be reduced to just 20% of capacity. As a result, European countries will be unable to refill natural gas storage in time for the colder months. As a result of Russia’s squeeze on gas, higher prices are likely to lead to a switch from gas to oil, supporting oil prices. Meanwhile, the deteriorating demand outlook as recession fears rise could help keep a lid on oil price rises.

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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