- Big tech not immune to slowdown, blowing Wall Street rally off course.
- Alphabet, Microsoft disappoint and Meta tumbles in after-hours trading.
- All eyes on the European central banks as a super-size rate hike is forecast.
- FTSE 100 opened flat but energy stocks rise after higher US oil exports push up crude prices.
- Unilever shows pockets of consumer resilience but Lloyds preps for bad debt
- Sterling clings onto six-week highs as Rishi Sunak offers stability
Susannah Streeter. senior investment and markets analyst, Hargreaves Lansdown:
‘’Realisation has dawned that the might of big tech is not immune to the slowdown. Hopes that resilience would burn brightly through this US earnings seasons have dimmed, with disappointing results from Alphabet and Microsoft helping bring the recent rally to an abrupt end. Meta’s numbers are set to cast a shadow over the upcoming sessions, with shares tumbling almost 20% in after-hours trading. The Facebook owner is battling a downturn in business confidence which is showing up in lower ad revenues and the Pied Piper tunes of Tik Tok which are luring potential younger customers away in their millions. Apple, Amazon, Intel and Mastercard are the big names on the billboard to watch later and eyes will be keenly trained on fresh signs of consumer and business confidence.
There are more discordant notes for the US housing market as well, with the number of new build sales falling in September and revised lower for the previous month. Expectations are still bubbling that this will lead to a softer path of interest rate rises, but for now the immediate impact of a sharper downturn on earrings is taking centre stage, rather than the expected relief that may come when the Federal Reserve eventually turns down the heat.
Other central banks are still playing catch up, with the ECB widely expected to bring in a super-size rate hike at a meeting later, just as Europe is still grappling with its energy security conundrum, and economies are slowing sharply. Although a closely watched barometer in Germany, the GfK Consumer Climate Indicator, has edged up a little, sentiment is still close to rock bottom, and the all time low hit in October, so in term of progress it’s not much to shout about.
Inflation is still considered to be the wildest threat to tame so the the European Central Bank is expected to announce a 0.75% rate hike and hint for further robust rises to come. But given the sensitivity of the bond markets, there is not set to be a rollback in its mass stimulus quantitative easing programme any time soon, at least until much further into 2023 when it’s likely to be a very gradual process.
The FTSE 100 opened pretty flat, amid a hangover from a lower close on Wall Street but recent gains in the oil price are boosting energy stocks. Brent Crude has dipped a back little but is still largely clinging onto yesterday’s big advance, trading up 3% to around $95. A surge in US crude exports has lifted sentiment, indicating that despite slowing economies demand for the black stuff remains strong.’’
There are still big pockets of consumer resilience as outlined in Unilever’s results with the household goods giant having been able to pass on price rises but as the cost-of-living screws are turned tighter and recession bites, risks that shoppers will drift away to cheaper brands are rising, with volumes already under pressure. Lloyds Bank, a bellweather of UK economic health, is preparing for a pretty miserable months ahead, with bad loan provisions rising, in full expectation that a large chunk of borrowers are going to find it impossible to pay back what they owe. Nevertheless sterling is still hanging around highs not seen for around 6 weeks against the dollar, hovering just under $1.16. Investors are welcoming the jolt of stability which has returned to Westminster with Rishi Sunak now operating out of Number 10, even though he still is likely to face a rocky political and economic ride ahead.’’
Leave a Reply