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LONDON MARKET EARLY CALL: US tech earnings cloud European stock open

26th Oct 2022 06:56

(Alliance News) - Stocks in London were called to open slightly lower on Wednesday, after Alphabet and Microsoft shares were sold off in after-hours trading in New York on Tuesday, putting a cloud over European markets.

IG says futures indicate the FTSE 100 index of large-caps to open down 9.78 points, or 0.1%, at 7,003.70 on Wednesday. It was stable on Tuesday, closing down just 0.51 of a point at 7,013.48.

In the US, the week's strong rally continued, with stocks ending sharply higher on Tuesday, with the Dow Jones Industrial Average up 1.1%, the S&P 500 up 1.6%, and the Nasdaq Composite up 2.3%.

Wednesday's picture looks bleaker, however. Big technology shares Alphabet and Microsoft both lost more than 6% after releasing quarterly figures.

"US and European futures are trading lower as traders are digesting the earnings from mega techs, which largely disappointed many investors," AvaTrade Chief Market Analyst Naeem Aslam said.

"Both Alphabet and Microsoft's stocks suffered brutal losses in after-hours on the back of their earnings, and the message was highly synchronised: cuts in headcounts and growth is shrinking. The saga of mega tech earnings isn't over, as we will have giants like Amazon and Apple to report their earnings this week, and their results could take a further serious toll on the risk sentiment."

Alphabet reported a sharp fall in quarterly income on higher costs and foreign exchange headwinds but recorded a rise in revenue.

The California-based technology conglomerate reported a 27% fall in net income to USD13.91 billion in the third quarter of 2022 compared to USD18.94 billion a year before.

More positively, revenue rose by 6.1% to USD69.09 billion in the period from USD65.12 billion. The company attributed the revenue growth to healthy fundamental growth in Search and momentum in the Cloud business.

Microsoft reported a rise in first-quarter earnings, with Chair & Chief Executive Satya Nadella arguing that digital technology was the "ultimate tailwind" in a world facing increasing challenges.

In the three months that ended September 30, revenue totalled USD50.12 billion, up 11% from USD45.32 billion the previous year. Revenue in the Intelligent Cloud segment increased by 20% against the previous year, while revenue in Productivity & Business Processes grew by 9.0%.

Microsoft, however, saw a fall in net income. The figure dropped 14% to USD17.56 billion from USD20.51 billion a year prior.

In the UK, new PM Rishi Sunak unveiled his new Cabinet, culling nearly a dozen of former PM Liz Truss's top-tier ministers, such as Jacob Rees-Mogg, while reviving the careers of a host of big names, including Suella Braverman, Dominic Raab and Michael Gove.

Prime Minister's Questions on Wednesday will be the first test of how unified the party is behind its new leader, after Sunak used his first public address on Tuesday to brace the country for "difficult decisions" as he criticised much of the legacy left behind by Truss's brief tenure.

"Some mistakes were made. Not born of ill will or bad intentions – quite the opposite in fact. But mistakes nonetheless," he said.

The pound continued its strong move higher, as AvaTrade's Aslam noted investors feeling comfortable with "some kind of normalcy" in UK politics.

Sterling was quoted at USD1.1459 early Wednesday, soft from USD1.1464 at the London equities close on Tuesday.

"However, the magnitude of the forthcoming financial challenge has not reduced at all. The Bank of England's decision to raise interest rates this winter and the resulting economic hardship for companies and consumers will be in large part determined by the next steps taken by the government on the budgetary front," Aslam added.

The euro traded at USD0.9960 early Wednesday, steady on USD0.9963 late Tuesday. Against the yen, the dollar was quoted at JPY148.11, up from JPY147.77.

In Asia, the Shanghai Composite was up 1.0% and the Hang Seng index in Hong Kong advanced 1.4%. The Japanese Nikkei 225 index was up 0.9%.

The S&P/ASX 200 stock index in Sydney closed up 0.2%.

Gold was quoted at USD1,656.10 an ounce early Wednesday, higher than USD1,655.96 on Tuesday evening in London. Brent oil was trading at USD90.95 a barrel, down from USD91.91 late Tuesday.

In the economic calendar, there's a US goods trade balance print, before the Bank of Canada issues an interest rate decision at 1500 BST.

In Wednesday's UK corporate calendar, Barclays will publish its third-quarter results and Bloomsbury Publishing posts its half-year results.

By Paul McGowan; [email protected]

Copyright 2022 Alliance News Limited. All Rights Reserved.

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