26 Oct

Reports from Google and Microsoft disappointed investors. Inflation in Australia reached a 32-year-high

October 26, 2022

By JustMarkets

At yesterday’s close of the stock market, the Dow Jones Index (US30) increased by 1.07%, and the S&P 500 Index (US500) added 1.63%. Technology Index NASDAQ (US100) gained 2.25% on Tuesday. Investor sentiment improved amid growing expectations that the high-interest rate damage to the US economy may prompt the Federal Reserve to soften its hawkish stance. Also, a positive for the market is the reporting season, but tech giants were disappointing yesterday.

Google Inc (GOOGL) failed to beat quarterly earnings estimates Tuesday as advertisers cut back in the face of the economic downturn. As a result, the company’s stock plummeted nearly 7% on the report release.

Microsoft (MSFT) shares also fell more than 6% in after-hours trading after the software giant disappointed in its revenue growth forecast for its Azure cloud computing business.

On Tuesday, Spotify Technology SA (SPOT) beat Wall Street estimates for third-quarter revenue and subscriber growth but said harsh economic conditions led to slower-than-forecast advertising growth.

The US consumer confidence fell more than expected in October to a three-month low as high inflation, and growing concerns about the economic outlook put pressure on Americans. The drop in confidence shows that the Federal Reserve’s aggressive interest rate hikes are taking a toll on consumers. And with the midterm elections just two weeks away, this is a worrying sign for President Joe Biden and the Democrats, who are trying to maintain their slim majority in Congress. In the future, inflationary pressures will continue to pose strong obstacles to consumer confidence and spending, leading to a difficult holiday season for retailers.

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Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE30) gained 0.94%, France’s CAC 40 (FR40) added 1.94%, Spain’s IBEX 35 (ES35) increased by 1.49%, Britain’s FTSE 100 (UK100) closed down slightly by 0.01% on Tuesday.

Deutsche Bank reported a significant jump in earnings in the third quarter despite a downturn in deal-making. UniCredit raised its 2022 earnings target, with the second-largest Italian bank supported by higher interest rates and lower loan loss reserves.

Financial markets are convinced that tomorrow’s ECB meeting will include another significant increase in key interest rates. In line with the last move in September, the only uncertainty concerns the step of raising. The 75-basis-point hike that ECB officials have been talking about in recent weeks is still an unresolved issue since last month, and several Governing Council members demanded only a 50-basis-point increase on the grounds that a possible recession would itself reduce inflationary pressures. And more and more members are now talking about the likelihood of a limited recession in 2023. This week’s meeting will almost certainly also include a discussion of quantitative tightening (QT). But even without QT, financial markets are increasingly convinced that key interest rates are far from their peak. From the current level of 1.25%, analysts are predicting a rate hike to 2.25% by the end of the year.

New Prime Minister Rishi Sunak promises to lead the UK out of its economic crisis. Sunak reappointed Jeremy Hunt as his finance minister to appease markets that had abandoned his predecessor’s debt-driven economic plans. Sunak also warned that difficult decisions lie ahead as he hopes to cut government spending.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) jumped by 1.02%, Hong Kong’s Hang Seng (HK50) ended the day down by 0.10%, and Australia’s S&P/ASX 200 (AU200) was up by 0.28%. But since the market opened today, Hong Kong’s and China’s shares are showing the best dynamics of the day. Hong Kong’s Hang Seng Index (HK50) jumped by 2% from a 13-year low, while China’s Shanghai Shenzhen CSI 300 blue-chip index increased by 1.4%.

Inflation in Australia has jumped to a 32-year high. The reason for this is a sharp rise in home construction costs and rising gas prices. Data from the Australian Bureau of Statistics showed Wednesday that the consumer price index (CPI) jumped by 1.8% over the last quarter. On an annualized basis, the inflation rate rose from 6.1% to 7.3%. This is negative data that will push the Reserve Bank of Australia (RBA) to resume raising interest rates more aggressively. Initially, the RBA wanted to slow growth so that rising interest rates would not affect consumer spending too much, but that plan has not been successful.

S&P 500 (F) (US500) 3,859.11 +61.77 (+1.63%)

Dow Jones (US30) 31,836.74 +337.12 (+1.07%)

DAX (DE40) 13,052.96 +121.51 (+0.94%)

FTSE 100 (UK100) 7,013.48 −0.51 (−0.01%)

USD Index 110.88 −1.11 (−0.99%)

Important events for today:
  • – Australia Consumer Price Index (m/m) at 03:30 (GMT+3);
  • – US New Home Sales (m/m) at 17:00 (GMT+3);
  • – Canada BoC Monetary Policy Report at 17:00 (GMT+3);
  • – Canada BoC Interest Rate Decision at 17:00 (GMT+3);
  • – US Crude Oil Reserves (w/w) at 17:30 (GMT+3);
  • – Canada BoC Press Conference at 18:00 (GMT+3).

By JustMarkets

 

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.


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