Disappointing tech results tarnish global rally

written on October 26, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities traded higher Tuesday as Treasury yields and the US dollar pulled back amid growing expectations that the US Federal Reserve will turn less aggressive in the coming months. Soft US data this week signalling that previous rate hikes are already having an impact on the economy supported such a view. The Dow Jones Industrial Average rose 1.1%, the S&P 500 Index gained 1.6%, and the Nasdaq Composite advanced 2.3%. Shares in Europe also finished mostly higher, with the Euro Stoxx 500 Index rising by another 1.6% to extend the previous day’s rally. 

Summary

  • Asian equity markets advanced on Wednesday, with shares in mainland China and Hong Kong rebounding after facing pressure in recent sessions. Australian shares also advanced despite a hot domestic inflation report. 
  • European equity futures were little changed this morning while their US counterparts were seen opening deep in the red after disappointing results from some of the biggest US tech companies.  
  • Oil prices fell in early trade on Wednesday as the dollar firmed and as industry data showing US crude oil stockpiles rose more than expected, reinforcing fears of a global recession that would cut demand. 
  • The Consumer Price Index (CPI) indicator in Australia increased 7.3% in the year to September, accelerating from an upwardly revised 6.9% rise in August. It was the highest monthly CPI inflation at least since September 2018, as costs increased at a faster pace for both housing and food and non-alcoholic beverages. The core CPI advanced to 6.8% in September from 6.2% in August. 
  • Alphabet reported its fifth consecutive quarter of slowing sales growth after the closing bell on Tuesday, as weakness in the economy continued to dampen online advertising spending. Third-quarter earnings came in at $1.06 per share, down from $1.40 per share a year earlier. Revenue rose to $69.09 billion from $65.12 billion. Shares fell as much as 7.4% in after-hours trading.  
  • Microsoft’s fiscal first-quarter results beat Wall Street’s expectations as revenue gains for cloud and Office 365 helped offset Windows’ weakness. However, cloud revenue was lower than expected and the company’s quarterly guidance fell short of expectations as well. Shares were heavily beaten in after-hours trading, losing 8.1%. 
  • Deutsche Bank this morning reported a better-than-expected 475% jump in third quarter profit as investment banking revenues rose despite a slump in deal-making. Net income came in at $1.115 billion, well ahead of the €827 million expected.  
  • Visa reported a rise in fourth quarter earnings thanks to strength in consumer payments, resilience in e-commerce, and an ongoing recovery in cross-border travel. Looking ahead, Visa noted short-term uncertainty but said it remains confident in its long-term strategy. 
  • Coca-Cola yesterday posted Q3 EPS of $0.69 compared to consensus expectations of $0.64, as net revenue grew 10% year-over-year (y/y) to $11.1 billion, north of the expected $10.5 billion. In terms of guidance, the company expects Q4 comparable EPS growth to include a 9% currency headwind based on the current rates, but still raised its full-year outlook. 
  • General Electric reported adjusted Q3 EPS of $0.35, well below the $0.47 estimate, as revenues rose 7% y/y to $18.44 billion, roughly in line with estimates. The company, which operates in the aerospace, energy, and healthcare sectors, has lowered its full-year guidance. 
  • General Motors reported adjusted Q3 EPS of $2.25, above the expected $1.88 estimate, as revenues grew 56.4% y/y to $41.9 billion, below the expected $42.1 billion. GM said full-size pickups, full-size SUVs, and Cadillac Escalade sales led the way. The company reaffirmed its full-year guidance despite noting a challenging environment because demand continues to be strong, and it is actively managing the headwinds it faces.  

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Life’s full of mysteries. Your money shouldn’t be one of them.