European markets underwent a mixed session yesterday with strong gains in the energy sector helping to push the FTSE100 to its highest level in over a month, while the CAC40 lagged.
It was a similar story for US markets which saw the Nasdaq 100 and S&P500 close lower, while the Dow gained, as disappointment over tech earnings numbers weighed on the wider market.
With earnings and guidance misses from the likes of Alphabet, Microsoft and Meta Platforms continuing to implode there was a hope that Amazon and Apple would come riding over the horizon to the rescue.
As far as Amazon was concerned this turned out to be a vain hope as the stock face planted after hours, after guiding lower on its Q4 numbers, and missing expectations on Q3 net sales.
These were still 15% higher from a year ago at $127.1bn, but fell shy of estimates, but higher costs meant that operating income came in lower, coming in at $2.5bn, with only AWS improving its operating income with a modest increase to $5.4bn on sales of $20.5bn. Operating margins also came in lower at 2%.
While the Q3 numbers were disappointing, it’s the guidance which is doing the damage with Amazon estimating sales of between $140bn to $148bn for the pre-Christmas period, well below forecasts of $155.5bn. Part of the reason for the miss on revenue appears to be being blamed on FX effects, i.e., a strong US dollar. Costs have also risen sharply over the last nine months, currently at $355.27bn, up from $311bn a year ago, an increase of 14% year on year.
Amazon also said it could struggle to turn a profit for Q4, in a year that has seen the company register huge losses during H1 due to its stake in Rivian.
So, could Apple buck the trend? On a first look basis the Q4 numbers were all in line with expectations, albeit with a slight negative bias after services revenue fell short, as did iPhone revenue, which saw the shares slide after hours, although the market reaction has been modest thus far.
Overall Q4 revenue did beat expectations, at $90.15bn, helped by strong beats on Mac and Wearables, however on iPhone revenue this fell fractionally short at $42.63bn, as did services at $19.19bn, below $19.65bn. iPad sales also missed at $7.2bn.
Mac revenue came in at $11.51bn, exp $9.25bn, wearables $9.65bn, exp, $8.8bn.
The Greater China region continued to be a drag with revenues of $15.47bn.
With tech performing so poorly, the messaging to markets is confusing many investors as the sharp slowdown in the fortunes of the tech sector, contrasts with the outperformance of more traditional economic bellwethers. The contrast is also outweighing the anticipation that central banks may be looking to slow the pace of their rate hiking cycle.
Yesterday the ECB became the latest central bank to signal that they were becoming concerned at how to balance tackling inflation with managing the slowdown in economic activity.
Following on from the RBA earlier this month and the Bank of Canada this week, who both raised rates by less than expected, the ECB still delivered a 75bps rate hike, however they weren’t unanimous, and the central bank refrained from committing to any intention on what might follow in December.
The ECB also resiled from outlining a plan to indicate a start date for quantitative tightening which suggests that there is a wide degree of disagreement amongst members as to the effects of current policy on the wider economy. As a result, the euro sank back below parity having hit a five-week high earlier in the day.
The latest US Q3 GDP numbers, while beating expectations on the headline number also indicated that the US consumer was becoming a little more cautious as personal consumption fell from 2% to 1.4%. We also saw increasing evidence from the numbers that price pressures were easing as the GDP price index fell from 9% in Q2 to 4.1%.
The big question is whether we see a similar trend manifest itself in today’s PCE Core Deflator numbers for September, at a time when core prices are proving to be stickier than the headline numbers.
PCE Core Deflator is expected to show an additional uplift with a jump to 5.2, from 4.9% which to all intents and purposes won’t alter the fact that we will probably see another 75bps from the Fed when they meet next week, however it could well alter the picture as to what comes in December. That’s the real narrative driving markets now, not so much a pause but a slowdown in the pace of hiking.
Personal spending is expected to remain constant at 0.4%.
Before those US inflation and spending numbers, we’ll also get some key Q3 GDP numbers from France and Germany, with the French economy slowing from 0.5% in Q2 to 0.2%, while the German economy is expected to contract by -0.2%, and down from 0.1% in Q2.
With everything that has gone on over the last 12 hours and the mixed finish yesterday in both Europe and the US and the reaction to last night’s numbers from Amazon and Apple, today’s European open looks set to be a negative one, with this morning’s Bank of Japan rate decision proving to be a snoozefest, with no policy changes.
EUR/USD – broke above the October highs, but quickly retreated from the 1.0090 area and slipped back below parity. The sharp move lower could see a return to the 0.9870 area in the short term, where we have the 50-day SMA. Bias remains higher while above 0.9850.
GBP/USD – ticked up to the 1.1640 area and trend line resistance from the highs this year, before slipping back. We could slip back to the 1.1410 area and 50-day SMA, but bias remains higher towards 1.1700, while above this key level.
EUR/GBP – continues to home in on the 0.8600 level and 100-day SMA, after breaking below the 0.8650 area and the 50-day SMA. A break below 0.8580 could see the 0.8530 area. Resistance remains back at the 0.8780 area.
USD/JPY – a marginal new low at 145.11 with the slide in US yields, helping the yen to strengthen. A break below 145.00 could see 140.00. Resistance now at 148.40.