Galt&Taggart published Global Markets Weekly Update.
USA
The S&P 500 (SP500) retreated 2.53% for the week to close at 4,117.37 points, posting losses in four out of five sessions. The benchmark gauge's slide pushed it into correction territory, with Friday's closing price marking a more-than-10% drop from the S&P's 52-week closing high of 4,588.96 points notched on July 31. That comes just two days after the Nasdaq Composite (COMP.IND) also entered correction territory. The main driver of Wall Street's retreat this week was a slide in megacap technology stocks. Ten of the 11 S&P sectors ended in the red. Defensive name Utilities (XLU) was the only gainer. The losers were led by outsized declines of more than 6% and 5% in Energy (XLE) and Communication Services (XLC), respectively. Technology (XLK) shed nearly 2%.
MICROSOFT & ALPHABET
Microsoft & Alphabet Earnings: Wall Street analysts praised Microsoft's fiscal first-quarter earnings report, highlighting strong earnings and the performance of key segments, such as the Azure cloud unit and the highly anticipated launch of Microsoft's Copilot artificial intelligence product. Microsoft's shares surged by approximately 3% during Wednesday's trading. The company exceeded expectations, reporting earnings per share of $2.99, surpassing the consensus estimate of $2.65, and revenue of $56.52 billion, beating the consensus estimate of $54.50 billion. Analysts commended the robust revenue growth and consistent execution, with Deutsche Bank analyst Brad Zelnick even raising the price target from $380 to $395, emphasizing Microsoft's operating discipline and full-stack AI solutions. Microsoft's forthcoming Copilot AI service launch in November was described as "the most anticipated new product" in the industry. While Microsoft's first-quarter
results were deemed exceptional, some analysts slightly adjusted price targets due to higher capital expenditures, with a focus on Azure's second-half growth and its growing AI contribution. On the same day, Alphabet also reported its earnings, but its fortunes took a different turn as Google shares experienced a significant drop. Alphabet's stock declined by 9.5%, the steepest drop since the early days of the Covid pandemic, due to underwhelming performance in the company's Google Cloud unit, which fell short of analyst estimates. This contrasted with Microsoft's robust Azure growth, which further underscored Google's cloud optimization challenges.
META
Meta Earnings: Meta, the parent company of Facebook, reported better-than-expected results for the third quarter, with a 23% increase in revenue, the fastest growth rate since 2021. The company's earnings per share were $4.39, exceeding the expected $3.63, and revenue reached $34.15 billion, surpassing the expected $33.56 billion. Meta experienced faster growth in its core digital advertising business as clients rebounded from a challenging 2022, where revenue had dropped for three consecutive quarters. Notably, Meta's effectiveness in online advertising, following Apple's iOS privacy changes in 2021, helped drive this reacceleration. However, the company widened its revenue guidance range for the fourth quarter due to potential ad softness related to the Middle East conflict. Meta's expenses for 2023 are expected to be between $87 billion and $89 billion, with a continued focus on investment in artificial intelligence. The stock initially rose in extended trading after the report, but then reversed course and fell more than 3% following cautionary comments from finance chief Susan Li about potential ad softness.
USA
AMAZON
Amazon Earnings: Amazon reported strong third-quarter earnings and revenue that surpassed analysts' expectations. Earnings per share came in at 94 cents, exceeding the expected 58 cents, and revenue reached $143.1 billion, surpassing the expected $141.4 billion. Key segments such as Amazon Web Services and advertising also performed well. Amazon's core e-commerce business continued to recover, with a 7% year-over-year expansion in sales. The company's net income more than tripled to $9.9 billion, from an year earlier. Amazon's digital advertising business remained a bright spot, with a 26% year-over-year increase in ad revenue. However, in the cloud market, Amazon's AWS showed growth of 12%, while competitors like Microsoft Azure and Google Cloud reported stronger growth rates. Amazon's cost-cutting efforts were reflected in its profit margin, which reached its highest level since early 2021. CEO Andy Jassy expressed optimism
about the future of AWS, indicating a pick-up in closed deals and deals signed in September that will impact the fourth quarter. AMZN stock jumped almost 7% on Friday.
EARNINGS THIS WEEK:
Monday, October 30 - McDonald's (MCD), Pinterest (PINS), Transocean (RIG), and SoFi Technologies (SOFI).
Tuesday, October 31 - Amgen (AMGN), Caesars Entertainment (CZR), Caterpillar (CAT), First Solar (FSLR), Pfizer (PFE), JetBlue Airways (JBLU), and Advanced Micro Devices (AMD).
Wednesday, November 1 - CVS Health (CVS), DuPont (DD), Estée Lauder (EL), Humana (HUM), Qualcomm (QCOM), Yum! Brands (YUM), Airbnb (ABNB), Electronic Arts (EA), PayPal (PYPL), AIG (AIG), and Etsy (ETSY).
Thursday, November 2 - Apple (AAPL), Moderna (MRNA), Palantir Technologies (PLTR), Starbucks (SBUX), Regeneron Pharmaceuticals (REGN), Duke Energy (DUK), Booking Holdings (BKNG), Paramount Global (PARA), Monster Beverage (MNST), and DraftKings (DKNG).
Friday, November 3 - Dominion Energy (D) and Fluor (FLR).
Europe
ECB leaves rates unchanged
In local currency terms, the pan-European STOXX Europe 600 Index ended 0.96% lower amid uncertainty about interest rates, the economy, and conflicts in the Middle East. Major stock indexes slipped. Germany’s DAX fell 0.75%, France’s CAC 40 Index eased 0.31%, and Italy’s FTSE MIB dipped 0.25%. The UK’s FTSE 100 Index lost 1.50%.
Eurozone government bond yields eased slightly after the European Central Bank (ECB) kept short-term interest rates on hold, raising expectations that rates have finally peaked in the eurozone. The 10-year German bund yield fell to around 2.84%, while the 10-year Italian government bond yield slipped to around 4.81%.
After increasing interest rates 10 consecutive times, the ECB left its key deposit rate unchanged at 4.0% and reiterated that maintaining this level for a long enough period would help to bring inflation down to its medium-term target of 2%. The Governing Council said previous
tightening of monetary policy was already spreading “forcefully into financing conditions” and was “increasingly dampening demand.” ECB President Christine Lagarde said at a press conference that the eurozone economy was “weak” and would remain so “for the remainder of this year.”
Eurozone business activity shrinks again
The decline in eurozone business activity accelerated at the start of the fourth quarter, according to purchasing managers’ surveys compiled by S&P Global. An early estimate of the HCOB Eurozone Composite Purchasing Managers’ Index (PMI), which includes both the manufacturing and services sectors, fell more than expected to 46.5 from 47.2 in September. This latest reading, a 35-month low, marked the fifth consecutive month that the PMI was less than 50, the level that corresponds with shrinking business output. The PMI for the manufacturing sector was the deepest into contractionary territory, and the slowdown in services quickened.
The latest leading indicators pointed to a challenging economic environment in Germany, with the composite PMI compiled by S&P Global remaining in contractionary territory and falling to a two-month low.
UK jobless rate rises; business activity declining
The UK’s unemployment rate rose to 4.2% in the three months through August from 4.0% in March-to-May period, according to a new data series from the Office for National Statistics that uses an updated methodology.
Separately, a purchasing managers’ survey showed that business activity in the private sector remained in contractionary territory for a third month running in October.
Japan
JGB BENCHMARK YIELD HITS 10-YEAR HIGH
Japan’s stock markets eased over the week, with the Nikkei 225 Index down 0.86% and the broader TOPIX Index little changed. Rising bond yields and geopolitical tensions weighed on market sentiment at the start of the week, but investor bottom-fishing at the lows, a rebound in technology stocks, and a fresh dose of Chinese economic stimulus helped local stock markets recoup their losses.
Moves in the foreign exchange and bond markets and a pickup in inflation fueled intense speculation of potential intervention by the authorities and a possible adjustment to the yield curve control policy by the Bank of Japan (BOJ) at its upcoming meeting.
The yield of the 10-year Japanese government bond rose to a 10-year high of 0.87%, approaching the central bank’s upper bound of 1.0%, at the start of the week. The BOJ then conducted an unscheduled bond-purchase operation to curb rising sovereign debt yields, buying five-
to 10-year bonds and 10- to 25-year notes in the fifth unscheduled operation since July. According to some reports, markets are speculating that policymakers could debate proposals including another increase in the upper bound, revisions to BOJ market operations, and dropping
the mention of a desired target range for yields of plus or minus 0.5%, as that level has now been exceeded.
YEN WEAKNESS PROMPTS INTERVENTION FEARS
In the currency markets, the yen weakened past the closely watched 150 level to the U.S. dollar, spurring fears of a possible intervention by the authorities. Finance Minister Shunichi Suzuki warned speculators that officials would continue to respond to the currency market “with a strong sense of urgency,” but he declined to comment on whether there had been any recent intervention to support the currency.
INFLATION ACCELERATES; PMI SHOWS BUSINESS ACTIVITY CONTRACTED
Tokyo’s core inflation rate, a leading indicator of nationwide price trends, accelerated to 2.7% in October, which was above consensus and the first strengthening in four months. The consumer price index for Japan rose to 3.3% from 2.8% in September. Separately, the au Jibun Bank of Japan Composite PMI fell to 49.9 in October from 52.1 in September due to ongoing weakness in the manufacturing sector. Activity in the services sector expanded for a 14th straight month but at a slower pace. A PMI reading below 50 is consistent with a contraction in output.
In other economic news, Prime Minister Fumio Kishida unveiled measures to cut taxes by JPY 5 trillion at a coalition meeting. News reports said that the measures could include a reduction of JPY 40,000 per person next June and a handout of JPY 70,000 for low-income
households possibly by the end of 2023.
China
Equities in China rose as an improvement in industrial profits suggested that the economy may be stabilizing. The Shanghai Composite Index advanced 1.16% while the blue chip CSI 300 gained 1.48%. In Hong Kong, the benchmark Hang Seng Index added 1.32% in the holiday-shortened week. Stock markets in Hong Kong were closed Monday for the Chung Yeung Festival.
Profits at industrial firms in China increased by 11.9% in September from the prior-year period, marking the second consecutive monthly increase, but slowed from the 17.2% rise in August. For the first nine months of 2023, profits fell by 9% from a year ago, following an 11.7% contraction recorded in the first eight months of the year. Demand improved during the month, boosting hopes that parts of China’s economy may have bottomed.
Last Tuesday, China’s government authorized the issuance of RMB 1 trillion in additional sovereign debt for disaster relief and construction.
It also approved a plan to raise the fiscal deficit ratio for 2023 to about 3.8% of gross domestic product, up from the 3% limit it set in March.
The budget changes from the Standing Committee of the National People’s Congress were Beijing’s latest attempt to shore up support for the country’s financial markets and economy, which are struggling amid a persistent housing market crisis.
Country Garden Holdings, previously China’s largest property developer, defaulted on its offshore debt payments for the first time after it was unable to meet interest payments at the end of a 30-day grace period. The crisis at Country Garden, which recently appointed financial advisers to help it carry out an offshore debt restructuring, underscores the company’s fall into distress amid China’s housing market slump.
The company is the latest high-profile casualty of China’s housing market downturn after China Evergrande defaulted on its offshore bonds in 2021, an event that sparked the current crisis.
