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Traders Digest Mega Earnings

Traders Digest Mega Earnings

US and European futures are trading lower as traders digest the earnings from mega techs, which largely disappointed many investors. Alphabet and Microsoft’s stocks suffered brutal losses after-hours trading on the back of their earnings, and the message was highly synchronized: cuts in headcounts and growth are shrinking. The saga of mega tech earnings isn’t over, as we will have giants like Amazon and Apple to report their earnings this week, and their results could take a severe further toll on the risk sentiment.

The quarterly earnings reports for Boeing and Kraft Heinz are scheduled to be released on Tuesday before the opening bell. Traders anticipate additional Big Tech earnings from Meta following the opening bell.

Earnings 

Last night, Alphabet missed the analyst’s numbers by a mile in its earnings reports. Revenue in the company’s main business, YouTube, suffered, and the situation looks even direr when one compares the number with the street’s expectations which was expecting growth of about 3%. The numbers confirmed last night that the company reported its weakest increase since 2013 (other than the pandemic period)- just 6%.

Alphabet reported earnings per share (EPS) of $1.06 against the expectations of $1.25 and produced revenue of $69.09 billion against the forecast of 70.42. YouTube’s advertising revenue was $7.07 vs $7.42 billion. The stock is expected to get even more hammered today as it fell over 6% after its earnings report last night, and this is purely because it is difficult to see anything positive in last night’s numbers.

Microsoft also failed to impress investors last night, and the stock plunged over 6%. Cloud revenue was lower than expected, and for traders, this was the main story not only for Microsoft and also an indication for the rest of the economy. Further evidence of this argument was supported in the company’s guidance which fell short of expectations. Microsoft’s message is simple: it wants to moderate its operating cost as growth continues to remain a concern.

Traders Show Confidence In Sunak 

The selection of Rishi Sunak as the next prime minister by the Conservative Party has brought a return to some normalcy to the political climate in the United Kingdom. However, the magnitude of the future financial challenge has not been reduced. The Bank of England’s decision to raise interest rates this winter and the resulting economic hardship for companies and consumers will largely be determined by the government’s next steps on the budgetary front.

After Liz Truss’s terrible race for growth through unfunded tax cuts decimated the pound and sent government bond rates skyrocketing in the last month, the selection of Sunak has been hailed by financial markets as promising political stability. This comes after Truss’s disastrous drive for growth caused the pound to be decimated, and government bond yields soared. Compared to the dollar, the pound is almost 10% stronger than it was on September 26, when it set a record low, and the rates on gilts have returned to more normal levels after reaching excessive levels that caused pension funds to get agitated.

During the worst of the most recent financial crisis, bond investors planned to tack on an additional yearly interest expense of up to £20 billion for the United Kingdom. Although yields remain much higher than at the beginning of the year, Britain is no longer seen as a market outlier compared to the United States and Europe.

Significantly, due to the government’s decision to stop gambling with fiscal policy, traders have lowered their expectations on the amount of monetary policy tightening they believe would be deemed necessary by the UK central bank. A 5% benchmark rate may wipe as much as 5% off GDP, according to BOE Deputy Governor Ben Broadbent, who last week questioned “whether official interest rates had to increase by nearly as much as presently valued in financial markets” to help calm rate peak speculation.

The Bank of England (BOE) is widely anticipated to announce a 75 basis point hike, bringing the official rate to 3% at their meeting next week.

Oil 

Oil prices continue to consolidate as traders are still concerned about the global slowdown in economic activity, and this fear continues to hang over the oil prices. Fears of a slowdown are being weighed against indicators of tightness in the oil market by investors at a time when volatile risk sentiment in the broader markets has routinely caused crude prices to swing wildly.

Gold 

Gold prices are trading a little higher as the dollar index takes a pause from advancing further. The range of trading for the gold price has been narrowed now, and price action for the past few days shows a capitulation may be on the cards for gold as prices do not trend to trade in that fashion for any substantial period. One crucial factor that traders need to keep in mind is that the Fed is very much ready to deliver another super-sized interest rate hike next month, which is likely to create more strength for the dollar index, which could be adverse for the shinning metal.