Europe to open lower as Apple and Amazon depressed

European markets had 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 Jones gained as disappointment over tech earnings numbers weighed on the broader market.

With gains and misdirection from Alphabet, Microsoft and Meta Platforms continuing to implode, there was hope that Amazon and Apple would come on the horizon to the rescue.

As it concerns Amazon feared it could prove to be a vain hope as the stock crashed after hours, having guided its fourth-quarter numbers lower and missed expectations for third-quarter net sales.

These were still 15% higher than a year ago at $127.1 billion, but were below estimates, but higher costs meant operating profit was lower, at $2.5 billion dollars, with only AWS improving its operating profit with a modest increase to $5.4. billion on sales of $20.5 billion. Operating margins also fell to 2%.

Although the third quarter numbers were disappointing, it was the forecast that did the damage, with Amazon estimating sales between $140 billion and $148 billion for the pre-Christmas period, well below the forecast of $155.5 billion. Part of the reason for the revenue loss seems to be due to currency effects, i.e. a strong US dollar. Costs have also risen sharply over the past nine months, currently standing at $355.27 billion, up from $311 billion a year ago, a 14% year-over-year increase.

Amazon also said it could struggle to turn a fourth-quarter profit, in a year that saw the company post huge first-half losses from its stake in Rivian.

So could Apple bucking the trend? On the face of it, the fourth quarter numbers were all in line with expectations, but with a slight negative skew after Services revenue fell, much like iPhone revenue, which saw stocks tumble after hours, although market reaction has been modest so far.

Overall fourth quarter revenue beat expectations at $90.15 billion, helped by strong beats on Macs and Wearables, but iPhone revenue was slightly lower at $42.63 billion , as did services at $19.19 billion, below $19.65 billion. iPad sales also fell by $7.2 billion.

Mac revenue was $11.51 billion, exp $9.25 billion, wearables $9.65 billion, exp $8.8 billion.

The Greater China region continued to be a drag with revenues of $15.47 billion.

With tech performing so poorly, the messages to the markets are confusing many investors, as the sharp downturn in the tech sector’s fortunes contrasts with the outperformance of more traditional economic indicators. The contrast also outweighs the anticipation that central banks may seek to slow the pace of their rate hike cycle.

Yesterday the ECB became the latest central bank to signal that it was worried about how to balance tackling inflation and dealing with the economic downturn.

After the RBA earlier this month and the Bank of Canada this week, both of which raised rates less than expected, the ECB still hiked rates by 75 basis points, but they didn’t were unanimous and the central bank refrained from committing to any intentions on what might follow in December.

The ECB also backed out of presenting a plan to indicate a start date for quantitative tightening, suggesting there is a wide degree of disagreement among members over the effects of current policy on the wider economy. As a result, the Euro fell back below parity after hitting a five-week high earlier in the day.

The latest US GDP figures for the third quarter, while beating expectations for the headline figure, also indicated that the US consumer was becoming a little more cautious, with personal consumption rising from 2% to 1.4%. We also saw growing evidence in the numbers that price pressures were easing as the GDP price index rose from 9% in the second quarter to 4.1%.

The big question is whether we see a similar trend playing out in the current PCE Core Deflator numbers for September, at a time when core prices are proving to be more rigid than the headline numbers.

The PCE Core Deflator is expected to show further upside with a jump to 5.2 from 4.9%, which for all intents and purposes won’t change the fact that we’ll likely see another 75 basis points from the Fed during its meeting next week, but that may well change the picture of what comes in December. This is the real narrative driving the markets now, not so much a pause but a slowing of the pace of the hike.

Personal spending is expected to remain constant at 0.4%.

Ahead of those US inflation and spending numbers, we’ll also get key Q3 GDP numbers from France and Germany, with the French economy slowing 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’s happened in the past 12 hours and yesterday’s mixed end to Europe and the US and the reaction to last night’s numbers from Amazon and Apple, the European opening of expected to be negative, with this morning’s Bank Japan rate decision turning out to be a snoozefest, with no change in policy.

EUR/USD – broke above the October highs, but quickly retreated from the 1.0090 area and fell back below parity. The sharp drop to the downside could lead back to the near-term 0.9870 area, where we have the 50-day SMA. The bias remains higher as long as it is above 0.9850.

GBP/USD – touched the 1.1640 area and trendline resistance from this year’s highs, before falling back. We could fall back into the 1.1410 zone and the 50-day moving average, but the bias remains higher towards 1.1700, while still above this key level.

EUR/GBP – continues to head towards the 0.8600 level and the 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 in the 0.8780 area.

USD/JPY – a new marginal low at 145.11 with falling US yields, helping the yen to strengthen. A break below 145.00 could see 140.00. Resistance now at 148.40.

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