Risk sentiment is taking a hit from weak results from bellwether and e-commerce giant Amazon, which warned over the holiday quarter outlook. Apple’s iPhone sales also raise questions about the health of the consumer.
· ECB hikes rates by 75 basis points, but Christine Lagarde adopted a less hawkish tone
· German GDP & CPI are expected to show contracting growth and rising inflation.
· US core PCE is expected to rise to 5.2%, up from 4.9%; hot inflation could boost the USD
Europe booked a mixed, broadly higher close on Thursday after the ECB raised interest rates by 75 basis points as expected, taking rates to 1.5%, a joint record level for interest rates in the eurozone. The press conference with Christine Lagarde had a less hawkish tone, pulling the euro lower and lifting stocks.
In the US, Wall Street booked another mixed closed, with the Nasdaq and S&P500 pulled lower by weaker big tech earnings. Meanwhile, cyclicals helped the Dow Jones higher after data showed that the US economy grew faster than expected in Q3, even if this was down to a narrowing trade deficit as weaker demand curbed imports while exports jumped thanks mainly to oil. The headline figure masked weakness in consumption.
The underwhelming earnings from Amazon and Apple have raised concerns over the health of the consumer, hitting sentiment. Europe is heading for a lower start on the open.
Amazon
Amazon trades 12% lower in extended hours after initially dropping 20% after weak guidance on the holiday quarter worries investors. EPS was $0.28 on revenue of $127.10 billion, missing forecasts of $127.46 billion. Amazon expects Q4 revenue to be between $140 -$148 billion; analysts had been expecting sales of $155.15 billion. Stubbornly high inflation, rising interest rates, and a slowdown in the core retail business as shoppers return to shopping stores are challenges that Amazon has faced and continues to face.
Apple
Apple fell 3% before releasing earnings and rose after hours after the tech giant beat forecasts on both top and bottom lines. EPS was $1.29, ahead of the $1.27 forecast on revenue of $90.15 billion, ahead of the $88.9 billion estimated. However, iPhone missed forecasts, with revenue at $42.63 against $43.21 billion. Services revenue was also short of expectations, and the strong USD was a large headwind. Estimates for the holiday quarter were grim, although not as bad as Amazon’s dire outlook.
German CPI & GDP
While stocks in Europe are pointing to a weaker start, the EUR/USD is holding steady above 0.9950 as investors look ahead to German inflation and GDP data. This is the first look at how the German economy performed in the July to September period after narrowly missing a recession in Q2. Expectations are for a -0.2% contraction QoQ in Q3. Meanwhile, CPI inflation is expected to rise to 10.1% YoY in October, up from 10%. The data could paint a rather depressing picture of contracting growth and record-high inflation, highlighting the challenges that the ECB faces in hiking rates.
US PCE
Looking ahead to the US session, in addition to earnings from Chevron and Exxon Mobil, US core PCE data will be in focus. The Fed’s preferred inflation gauge is expected to rise again to 5.2%, up from 4.9%. This data is unlikely to alter expectations for a 75 basis point hike from the Fed next week. However, hot core PCE could impact expectations for the December meeting, which is actually what is driving the markets now. Hot inflation could boost the USD; the US dollar index is looking at a 1.3% loss across the week at the time of writing. Gold could also fall; the precious metal is so far trading flat across the week.
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