Global markets traded up strongly overnight, with US markets (S&P 500 Index +2.1%) jumping to a 3-month high as US Inflation (CPI) data came in lower than expected.
While still a hot inflation print, the consumer price index (CPI) rose +8.5% year on year for the month of July, the same increase in June and slightly below economists’ expectations of +8.7%. The recent drop in oil prices helping ease the result, with month on month inflation flat – signaling we may be past peak inflation.
Markets digested this as good news, interpreting the lower inflation print for August as meaning we may see the Fed slow down its aggressive interest rate hike path.
Tech (NASDAQ index +2.8%) and consumer discretionary stocks led gains with all sectors trading higher as traders took on a more risk-on tone – with the VIX volatility measure (the fear gauge) dropping below 20 for the first time in four-months.
European Markets (Stoxx 600 Index, +1%) rose, with most sectors trading higher led by retail stocks in response to US inflation data coming in lower than expected.
Microsoft (MSFT:NASDAQ)
Microsoft released a softer result for the fourth quarter of the 2022 fiscal year (three months ending June 2022). Total Revenue came in at $51.9 billion which was up +12% from last year and missed market expectations by $493m.
However the stock has been trading higher, and we reaffirm our BUY rating for Microsoft, Inc. In the face of significant economic slowdown the company grew revenue by 16% (decelerated by 5 points compared to last quarter) and earnings per share by 3%, to $2.23 per share. Crucially, management guided for revenue growth of 15% next quarter (year on year. This reflects our belief that Microsoft’s unique mix of cloud and enterprise solutions give it structural pricing power and earnings predictability perhaps only shared with Alphabet (GOOG).
The company’s cloud segment, Azure, posted very pleasing growth of 46% for this quarter, guiding for 43% next quarter which was most likely the reason for an aftermarket rally in the stock. Much like Alphabet (GOOG) and Amazon (AMZN) the compelling story here is the cloud. We caution that the macro outlook does weigh upon results and is likely to continue to do so next quarter. We remain positive on Microsoft. Over the long term, the company has demonstrated itself to be a “cash generating machine”, compounding revenues at a highly respectable rate of 10.40% over the last 10 years.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index, -0.5%) fell for the first time this week as investors digest the start of earnings season.
Technology shares were hardest hit with most sectors trading lower, while a rise in major bank shares partially offset a downbeat day. CBA was the only one amongst the big four lenders to fall down -0.3%, after delivering a net profit of $9.6 billion, which rose +11% from last year however the bank cited net interest margins have tightened.
Graincorp was one of the top performers rising +5.1%, after releasing profit upgrade, as it benefits from strong ongoing demand for crude and refined vegetable oils.
The New Zealand market (NZX 50 Index) was flat again on Wednesday.
A2 Milk shares slumped -7.5% after revealing the US Food and Drug Administration (FDA) is deferring further consideration of its request for enforcement to import infant milk formula.
3 Things Markets will be Watching this Week
– US and China inflation (CPI) data will be the major news of interest
– US earnings continues now towards the backend.
– Locally, Australian earnings kick off with the financial sector, Suncorp, NAB, CBA, AMP and QBE due to report this week as well as Telstra and ResMed.