S&P 500 — US Large Cap Index
FTSE 100 — UK Blue Chips
Euro Stoxx 50 — Eurozone Leaders
DAX 40 — German Equities
CAC 40 — French Market Index
Nikkei 225 — Japan Benchmark
Hang Seng — Hong Kong Index
Shanghai Composite — China Mainland
ASX 200 — Australian Market
TSX Composite — Canada Index
Nifty 50 — India Large Cap
STI Index — Singapore Market
KOSPI — South Korea Index
Bovespa — Brazil Equities
JSE Top 40 — South Africa Index
IPC Index — Mexico Market
The end of the week is dominated by a continuation of the recent AI sell off on disappointing earnings, and concerns about the safety of crypto, after a $6.3bn heist at the world’s largest cryptocurrency exchange, Binance. This is weighing on sentiment towards tech and digital assets, the Nasdaq is pointing to a lower open later today and Bitcoin is down 0.5% on Friday.
These factors are keeping investors on edge as we move to the end of the week, and there is a fresh rush to safe havens. Sovereign bonds are rising once more on Friday, and yields are falling across Europe, the US and the UK.
Bond market unconcerned by UK government’s failure to tackle welfare bill, for now…
The bond market remains unconcerned by the UK government’s dithering on welfare spending cuts and the prospect of reducing debt through a rising tax burden. This does not mean that the bond market is endorsing Healey and Burnham’s approach of more tax and more spending, instead, it is a sign that market pressures are elsewhere, which is keeping the vigilantes at bay.
Oil price moving higher once more
Interestingly, yields are falling even though the oil price is rising by 1.6%, and Brent crude is back above $112 this morning. The upwards pressure on the bond market comes after a lack of progress on reports that the US and Iran would resume diplomatic efforts to bring the war to an end.
FTSE 100 shines as tech sells off
As parts of the US tech sector come under immense downward pressure due to disappointing earnings, investors are turning their attention elsewhere. The FTSE 100 is leading global indices on Friday, as investors rotate into other sectors of the market. Strong results from AstraZeneca and BP are lifting sentiment. AstraZeneca posted stronger than expected profit levels, driven by booming sales of its oncology drugs. Its share price is higher by 3% so far on Friday.
BP’s share price is up by a moderate 0.3% today, but it also reported strong earnings, with profits for last quarter coming in at $8.46bn. Like Shell, refining margins are driving gains. Net debt also fell, which is another sign that the new strategy under CEO Meg O’Neil is starting to deliver. Of course, supply disruption caused by the wars in the Middle East and in Ukraine, are also helping to deliver strong margin growth to the UK oil majors. NatWest also delivered a decent earnings report with profits ahead of analyst estimates.
Q3 is still a strong earnings season, even with tech slip ups
The UK’s strong earnings reports contrast with some of the US tech giants who have disappointed expectations. Interestingly, although investors are turning away from the AI trade in the wake of negative cash flows and weaker than expected sales figures for some tech names, overall the S&P 500 is reporting its second strongest quarter for profit margins in 15 years, according to FactSet. This is driven by energy and tech, while finance and real estate are lagging.
Quarter on quarter growth in profit margins on the S&P 500 is led by the utilities sector, while the communications sector is seeing lower profit margin growth in Q3 vs. Q2. This suggests that earnings growth in the short term could be broadening out beyond just tech.
Amazon joins Alphabet with disappointing earnings as Mag 7 slump
Alphabet’s share price slumped 12% on Thursday, and there are further losses expected on Friday, although in the pre-market, Alphabet’s shares are currently only down by 0.3%. The Nasdaq is expected to have another rough day after falling 1.3% yesterday. Currently, Nasdaq futures are predicting a 2% slump in the main tech index today.
The tech sector is coming under further pressure due to a 6.5% slump in Amazon in pre-market trading and a massive 26% drop in Intel’s share price after investors were disappointed by results. Amazon delivered strong cloud growth, and revenues climbed 12% YoY, however, earnings per share was weaker than expected, and free cash flow turned negative to the tune of $42.4bn, due in part to its $220bn AI spend. Considering its main AI unit, Amazon Web Services, generated $46bn in revenues last quarter, the cost of Amazon’s AI ambitions is not yet justified by sales, even though AWS sales growth is rising at a fast pace.
Intel slumps by more than a quarter on sales slowdown
Intel’s share price drop is enormous, after a dismal earnings report. The company reported weaker than expected sales forecasts as PC chip sales slow. Gross margins were also lower than expected due to the high price of memory chips, which is eating into Intel’s bottom line.
These numbers break a string of stronger results for Intel in recent quarters, and suggest that cost inflation, most notably in memory chips, is starting to impact the performance of other parts of the AI industry.
Overall, it is unlikely that the AI trade will recover on Friday, and instead the focus is shifting to the non-tech sectors of the market and safe havens as we reach the end of October trading.
