Thu, Dec 08, 2022 @ 17:39 GMT
HomeContributorsFundamental AnalysisUgly Big Tech Earnings Kill Joy – ECB Hikes and BoJ Sleeps

Ugly Big Tech Earnings Kill Joy – ECB Hikes and BoJ Sleeps

An ugly week of Big Tech earnings is coming to an end, having wipe out hopes of seeing earnings boost gains across the stock markets.

Yesterday, Meta plunged more than 24%; Nasdaq 100 lost almost 2%.

And today won’t be any better, as Apple and Amazon also lost in the afterhours trading.

Amazon lost up to 20%! Amazon’s Q3 revenues grew 15% versus last year, that was slightly less than expectations. The cloud segment grew 27% over the quarter, also worse-than-expected. The net income fell to $2.9bn from $3.2bn a year ago. But what really hit investors is the estimation of a holidays season revenue of around $140 to $148 billion, versus around $155 billion penciled in by analysts. The potential $15bn miss on holidays sales will send Amazon below the $100 mark at the open today. Whether the dive would attract dip-buyers is yet to be seen.

Apple, on the other hand, lost nearly 3% at its worse, after the bell. The company did better than the revenue and earnings expectations, but the uptick in iPhone sales was worse-than-expected, although Apple continues onboarding Android users, and grew its active user base to a fresh record. Apple lost more than 3% at yesterday’s tech selloff, and will unlikely recover much of it before the weekly closing bell.

In summary, the US Big Tech rather killed joy this week, so all eyes are on Big Oil to reverse mood. Exxon Mobil and Chevron will be reporting earnings this Friday, and are expected to announce stunning earnings.

But there are two important things to keep in mind. First, the expectations are high, so they will be harder to beat. And second, Joe Biden is pressuring oil companies not to use their stunning profits to buy back stocks, or throw out dividends, but rather to use them to increase supply, and bring oil prices lower.

In all cases, energy companies are the biggest winners of the energy crisis, and the rally is not ready to reverse.

Exxon Mobil flirted with $110 yesterday, extending its year-to-date rally to 80%, whereas the S&P500 lost up to 27%, and is 20% lower as of today due to high inflation – mostly triggered by skyrocketing energy prices, rising rates, and deteriorating economic outlook.

And that mixed US GDP

Investors didn’t know what to do with the mixed US GDP data yesterday. The latest GDP update showed that the US economy grew 2.6% in the Q3, reversing two consecutive month slowing.

Yet, growth was not necessarily driven by a stronger US economic activity. In fact, exports boosted the headline figure, while imports fell – meaning that the domestic demand from the US weakened despite a significant appreciation of the US dollar. Consumer spending, on the other hand, advanced way weaker than the previous period. So, the strong GDP number didn’t boost the Federal Reserve (Fed) hawks. On the contrary, if the Fed wants a lower inflation, weaker demand is exactly what it needs – and weaker demand was a major conclusion of yesterday’s otherwise strong GDP print.

This is certainly why we saw the S&P500 stocks limit losses yesterday, while the Dow Jones eked out a 0.61% gain. The US 2-year yield eased almost 3%, although the dollar rebounded across major currencies.

ECB hiked, euro eased

The European Central Bank (ECB) hiked the interest rates by 75bp at yesterday’s meeting, but the hike was broadly expected and priced in. Investors mostly traded the post-meeting statement from Christine Lagarde, and that statement was rather… dovish.

Although Lagarde said that more rate hikes are on the pipeline, and that the pace and the size of the future actions will depend on data, she also said that a ‘substantial progress’ has been made in normalizing policy. And that ‘substantial’ word got many to think that the most aggressive part may have been already done.

Plus, the ECB said that the recession odds increased, and the officials didn’t discuss QT at this meeting.

The EURUSD swung up and down around parity, and consolidates below 1 at the wake of the latest ECB decision. As a result, the 100-DMA offers, which stand a touch above parity couldn’t be cleared this week, and sentiment in the EURUSD remains negative, though less negative given some softening in USD outlook this week.

The yen on the other hand gave back some advance against the US dollar, as the stubborn Bank of Japan (BoJ) maintained its interest rate unchanged at -0.10% at today’s meeting, while revising the 2022 inflation forecast significantly higher from 2.3% to 2.9%.

If the BoJ is lucky, the dollar will weaken from the actual levels, and the depreciation in the yen would remain reasonable. Otherwise, we could see dollar-yen spike above the 150 level despite the BoJ’s direct interventions which do nothing more than burning money.

One last thing

Investors will be watching one last thing on the macro front before the weekly closing bell – and that’s the September PCE index, along with the personal income and spending data. Any weakness could further weigh on the dollar before we close the week, and before next week’s FOMC meeting.

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