Results from big US tech seen stalling recent rally. 

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

The Nasdaq 100 and the S&P 500 closed 3.2% and 1.5% higher, respectively, on Thursday and enjoyed a post-Fed rally boosted by gains from the tech industry’s biggest players. Meanwhile, the Dow lost 0.1% as investors reassessed the outlook for monetary policy.   The global markets also reacted to 50-basis point rate increases from the European Central Bank and Bank of England. Earnings continued to pour in, with Apple, Amazon, and Alphabet all releasing disappointing numbers after the market close. The economic calendar delivered some positive news, with Q4 productivity much stronger than expected and unit labor costs slowing more than anticipated, and jobless claims continuing to slide, while factory orders missed estimates.  Shares in Europe ended mostly higher, with the Euro Stoxx 50 rising 1.7% to its highest level in over a year, buoyed by gains across technology and auto equities. 

Summary as at 03.02.2023 

• Asian equity markets were mixed on Friday as investors assessed mostly positive data in Asia which reduced pressure on authorities to maintain an accommodative stance.  Shares in Australia and Japan rose, while Hong Kong and Chinese equities fell. 
• European shares may struggle for traction and US futures took a decisive turn for the negative this morning as traders weigh poor results from Apple, Amazon, and Alphabet.   

• Oil prices were lower this morning and heading for a second weekly decline amid lingering uncertainties about China’s demand recovery and as US stockpiles continued to rise.   The boost to commodities from China’s reopening started to fade as the timing and degree of the country’s economic recovery remains highly uncertain. 
• The Caixin China General Services PMI increased to 52.9 in January 2023 from 48.0 in December. This was the first growth in the service sector since last August, buoyed by the recent rollback of pandemic curbs and faster-than-expected peaking of infections.  
• Preliminary Q4 nonfarm productivity in the US rose by 3.0% on an annualized basis, above the consensus estimate calling for a 2.4% increase, and following the upwardly revised 1.4% gain seen in Q3. Unit labor costs were up by 1.1% but below forecasts of a 1.5% rise. The figure decreased from Q3’s downwardly adjusted 2.0% increase in unit labor costs. 
• US weekly initial jobless claims came in at a level of 183,000 for the week ended January 28, below estimates of 195,000 and compared to the prior week’s unrevised 186,000 level. The four-week moving average declined by 5,750 to 191,750, and continuing claims for the week ended January 21 decreased by 11,000 to 1,655,000, south of estimates calling for 1,684,000.  
• Factory orders for December increased 1.8% month-over-month in the US, below the forecasted 2.3% gain, and versus the prior month’s negatively revised 1.9% decline.  

• The European Central Bank raised the interest rate on the main refinancing operations by 50 bps to 3.0% during its February meeting and pledged to deliver another 50 bps rate hike at its next monetary policy meeting in March. The central bank has also reaffirmed it would stay the course in raising rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target.  
• The Bank of England voted by a majority of 7-2 to raise interest rates by 50 basis points to 4.0 percent during its February meeting. However, the central bank dropped its pledge to keep increasing rates “forcefully” if needed and said inflation had probably peaked, suggesting it might start reducing the pace of rate increases soon. Looking ahead, Bank Rate is seen rising to around 4.50 percent in mid-2023 and falls back to just over 3.25 percent in three years’ time. CPI inflation was projected to fall to around 8.0 percent by mid-2023, and to around 4.0 percent towards the end of the year, while policymakers projected a much shallower contraction than previously estimated this year. 
• Alphabet Inc on Thursday reported lower-than-expected quarterly revenue as the ad business struggled under an economic slowdown that has choked corporate spending and triggered mass layoffs.  Revenue rose to $76.05 billion in Q4 from $75.33 billion a year ago.  Analysts were expecting $76.53 billion. 
• Amazon.com Inc bet Wall Street estimated quarterly sales after the market close yesterday, as the retailer’s marketing blitz during the holiday period helped attract shoppers.  Net sales were $149.20 billion in Q4, compared with analysts’ expectations of $145.42 billion. 
• Also Thursday, Apple posted its first quarterly revenue drop in nearly four years after pandemic-driven restrictions on its China factories curtailed sales of the latest iPhone during the holiday season.  The company’s sales of $117 billion for Q4 represented a 5% decline from the same time in the previous year, a deeper downturn than analysts had projected.  Earnings totaled $30 billion, or $1.88 per share, a 13 decrease from the same time in the previous year.  Those results also missed a target of $1.94 per share set by analysts.