Marketmind: Runaway Tech arrested
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[February 03, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan.
The coast may be clearing on interest rates but a spluttering economy
still has the power to check runaway stock markets.
What investors have to work out is how much the economic drag is simply
the condition for relief on rates. Friday's release of January's U.S.
employment report will provide some clues - but Big Tech gave its own
readout on Thursday.
Underwhelming quarterly results from mega cap technology giants Apple,
Alphabet and Amazon provided the reality check after the bell late on
Thursday - enough to send their share prices down 3%-5% in out-of-hours
trading and knock futures on this week's soaring Nasdaq and S&P500
indices back about 1% too.
The updates have been enough to curb what had been the best three days
for Wall St indices in about four months - after the best January for
the Nasdaq in 22 years - as investors bet the U.S. Federal Reserve's
credit squeeze is near done.
Apple earnings fell short of expectations and it forecast revenue would
fall for a second quarter in a row. But even though iPhone sales fell
for the first time since 2020, it said sales were likely to improve as
production had returned to normal in China after COVID-related
shutdowns.
Data on Friday backed that assertion as China's services sector activity
in January expanded for the first time in five months. Spending and
travel got a boost from the lifting of stringent COVID-19 curbs and
business confidence hit near 12-year highs.
But Alphabet also posted fourth-quarter profit and sales short of
expectations as Google's advertising clients pulled back spending from a
period of pandemic-led excess.
And Amazon said operating profit could fall to zero in the current
quarter as savings from layoffs do not make up for the financial impact
of consumers and cloud customers clamping down on spending.
To what extent layoffs in the tech sector are fanning out across the
economy will be monitored in the payrolls report later and the Fed will
be watching wage growth like a hawk.
Payrolls are expected to have risen by another brisk 185,000 last month,
although the unemployment rate likely ticked up to 3.6% from a more than
50-year low of 3.5% in December.
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The Apple Inc logo is seen at the
entrance to the Apple store in Brussels, Belgium November 28, 2022.
REUTERS/Yves Herman/File Photo
Annual wage growth is expected to have slowed to 4.3% from 4.6% in
December.
The extent to which the market thinks the Fed has nearly finished
its rate rise campaign - and seeding some of the FOMO, or fear of
missing out, behaviour on Wall St - can be seen in the drop in two-
and 10-year Treasury yields to their lowest since September.
Ten-year yields have fallen a full percentage point since the peaks
of October.
Elsewhere, shares of India's Adani Group companies fell sharply
again on Friday as ripples from a market rout disrupted parliament
for a second day, driving fears of investment contagion across the
country following last week's critical research report by a U.S.
short-seller.
Seven listed Adani enterprises lost more than half their market
capitalisation, which shrivelled to less than $100 billion, after
the Hindenburg Research report raised questions about the
conglomerate's debt levels and use of tax havens. The group shelved
its $2.5-billion share sale on Wednesday,
S&P Dow Jones Indices said it would drop the Adani Enterprises
flagship from widely-used sustainability indices on Feb. 7, blunting
their appeal for environment-conscious investors.
Key developments that may provide direction to U.S. markets later on
Friday:
* U.S. Jan employment report, Jan ISM service sector survey
* U.S. corp earnings: Cigna, Aon, Regeneron Pharmaceuticals, Zimmer
Biomet, LyondellBasell, Cboe Global Markets, Church & Dwight.
(By Mike Dolan, editing by Barbara Lewis mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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