Google and Microsoft reversed the joyful Tuesday sentiment. The US dollar and the US yields fall on soft economic data – that tempered the hawkish Federal Reserve (Fed) expectations.
The Bank of Canada (BoC) is about to deliver another jumbo rate hike, while Meta will be the next Big Tech to report earnings today.
Happy, but not for long
Most US indices rallied yesterday on the back of soft economic data from the US, but the sentiment reversed after the Q3 results from Google and Microsoft failed to please.
The data release yesterday in the US showed that the US consumer confidence and the Richmond manufacturing index fell significantly more than expected, while the US home prices fell for the second time in a row in August.
The latest data was good for inflation expectations, and good for recession fears, which both temper the Fed hawks a week before the Fed is preparing to announce another 75 bp hike in its rates.
The US 2-year yield has been easing after hitting a fresh 15-year high last week, as the US 10-year yield fell to 4.05%. The dollar index tanked around 1%, both the EURUSD and Cable advanced past their 50-DMA, which were acting as strong resistance since the start of the year, especially since the start of the war in Ukraine.
The USDCAD fell to a 3-week low, as the Bank of Canada (BoC) prepares to deliver another jumbo rate hike today. The BoC could deliver a 75bp hike, which would further fuel the odds of recession in Canada by next year.
Now, it’s important to note that the common denominator of the latest FX moves is the softer US dollar. And the downside moves in dollar and the US yields depend on Fed expectations – whatever the other central banks do seem accessory to the main dollar story.
Therefore, it’s worth noting that the Fed expectations have been shaped by softish data, and some softish comments from the Fed officials recently. But there is nothing official pointing at a potential softening tone from the Fed just yet. Hence, the recent fall in the US dollar, and rebound in equities may not last. Gains remain vulnerable. And very much so, as the latest results from the US tech giants failed to make the investors smile yesterday.
Earnings
Google’s cloud segment grew by an impressive 38% in Q3, but the core ad business made only 3%. So Alphabet ended up disappointing on both revenue and profit expectations. The stock price dived 6.50% in afterhours trading.
Microsoft managed to beat revenue and profit expectations slightly, thanks to a better-than-expected performance on PC and its productivity segment, which include products like Office and LinkedIn. The cloud revenue grew 20%. But that 20% was clearly not enough to bring investors on board. Microsoft stock fell around 6.5% after bell, as well.
Elsewhere, results were mixed after posting better-than-expected Q3 profit, and giving a surprisingly upbeat outlook. When you think that FedEx has fallen off a cliff after doing the exact opposite in September, you understand how important picking the right stock will be in the next market recovery, whenever it comes.
No fireworks expected from Meta
It’s sure that if the other tech giants saw their ad revenues slow, Facebook will hardly do better
The EPS is expected to drop from $2.46 to around $1.90. The challenging advertisement business, the strong US dollar and the rising competition from TikTok may have further weighed on Meta’s results, while there is little chance that the metaverse segment delivers anything enough promising to reverse the fortunes.
Mark Zuckerberg hopes that Meta’s Horizon Worlds would amass 1 billon users, but he will have to wait a while. For now, there are no more than around 200’000 people on Horizons World, down from around 300’000 in February.
