Global markets rallied overnight, as US markets (S&P 500 Index +2.6%) surged following better than feared results from Mega-Cap tech players Alphabet (Google) and Microsoft.
The US Fed hiked its rate by 75-basis points this morning which came as no surprise to the market and signaled there would be room for another 75-basis point hike at their next meeting in September, dependent on economic data – with two more monthly inflation and employment data releases due before the next interest rate decision. Powell appeared less hawkish than expected and remains optimistic that the US economy is in a strong position and can avoid a recession.
All sectors traded higher with tech shares (NASDAQ Index, +4.2%) leading gains. Microsoft jumped +6.7% despite revenue and earnings falling short of analysts’ expectations, due to softer PC market and challenges in advertising. However, the company guided double-digit growth for next year painting a much better outlook than markets had feared heading into the result.
European markets (Stoxx 600 Index, +0.5%) also rose on the back of some strong company results.
Closer to home, Australia’s Inflation (CPI) increased +6.1% year on year, reporting it’s highest level since 1990, but came in slightly lower (better) than expectations of +6.3%. Petrol (+4.2% QoQ), Construction Costs (+5.6% QoQ) and groceries (+2.3% QoQ) were the main contributors, with inflation on essentials up +7.6% on a year-on-year basis. The implication leaves the Reserve Bank of Australia (RBA) likely to hike by 50-basis points, while the inflation print was not as hot as other places around the world meaning a 75 point hike is less likely.
Alphabet (Formerly Google) (GOOG:NASDAQ)
Google shares jumped 7.7% overnight. Like Microsoft its second-quarter earnings missed market expectations, but the result held up better than feared heading into the result as there were concerns around online advertisers. Google’s search advertising revenue was better than feared, while YouTube ad revenue was weaker due to increased competition from the likes of Tik Tok and Meta.
Alphabet’s headcount rose +21% from last, while revenue growth slowed down to only +12%. In light of economic headwinds Alphabet will be slowing down their pace of hiring and investment through 2023 – with the CEO stating the company is not immune to a challenging economic environment.
We are Buy rated on Alphabet
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index, +0.2%) was up slightly on a mixed day of trade following Australia’s second quarter hot inflation print coming in a touch lower (better) than expected.
Healthcare and Financials led gains with Zip being the best performer on the day up another +20.1% enjoying a strong recovery over the past month.
Materials stocks were the worst performers, Rio Tinto released earnings after close which missed expectations and halved its dividend from the same corresponding period last year which included a special dividend as the miner enjoyed bumper iron ore prices.
The New Zealand market (NZX 50 Index, -0.3%) was down again on Wednesday.
Restaurant Brands was hardest hit as it fell -9.4% after delivering a weak profit guidance citing cost pressures, higher capex and limited ability to pass on cost inflation to consumers.
3 Things Markets will be Watching this Week
- The Fed releases its interest rate decision, and the US announces GDP figures for the second quarter.
- A busy week of US corporate earnings led by tech heavyweights Microsoft, Alphabet (Google), Meta Platforms (Facebook).
- Locally, Australian inflation (CPI) data and AGM’s from Ryman Healthcare, Pacific Edge, Mainfreight and a half year result from Rio Tinto.