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(Alliance News) - Stock prices 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.
In the US, the week's strong rally continued, with stocks ending sharply higher on Tuesday, but 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, the new prime minister, 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.
"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," he added.
Here is what you need to know ahead of the London market open:
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MARKETS
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FTSE 100: called down 9.78 points, or 0.1%, at 7,003.70
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Hang Seng: up 0.4% at 15,224.16
Nikkei 225: up 0.7% at 27,431.84
S&P/ASX 200: closed up 0.2% at 6,810.90
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DJIA: closed up 337.12 points, or 1.1%, at 31,836.74
S&P 500: closed up 61.77 points, or 1.6%, at 3,859.11
Nasdaq Composite: closed up 246.50 points, or 2.3%, at 11,199.12
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EUR: firm at USD0.9974 (USD0.9963)
GBP: firm at USD1.1474 (USD1.1464)
USD: up at JPY147.94 (JPY147.77)
GOLD: up at USD1,658.30 per ounce (USD1,655.96)
OIL (Brent): soft at USD90.83 a barrel (USD91.91)
(changes since previous London equities close)
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ECONOMICS
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Wednesday's key economic events still to come:
1200 BST US MBA mortgage applications survey
1330 BST US goods trade balance
1500 BST US new home sales
1500 BST Bank of Canada interest rate decision
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US President Joe Biden and UK PM Sunak, agreed in talks to work together to support Ukraine and stand up to China, the White House said. They spoke for the first time hours after Sunak became Britain's third prime minister this year, inheriting an economic crisis after the resignation of Liz Truss after a mere 49-day tenure. The two leaders also reaffirmed the "special relationship" that exists between the US and Britain, and said they would work together to advance global security and prosperity, the White House said in a read-out of the conversation. "The leaders agreed on the importance of working together to support Ukraine and hold Russia accountable for its aggression," the statement said of the war triggered by the Russian invasion of its pro-Western neighbour in February. The White House said Biden and Sunak also agreed to "address the challenges posed by China," which Washington has identified as its top geopolitical and economic rival on the world stage today.
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China's fiscal deficit ballooned to an all-time high of nearly USD1 trillion in the first nine months of the year, analysis of government data by Bloomberg showed, as a real estate crisis and tax rebates to boost a cooling economy emptied government coffers. The budget shortfall for all levels of government from January to September was CNY7.16 trillion, about USD980 billion, according to an analysis based on data released by Beijing's Ministry of Finance on Tuesday – almost three times the CNY2.6 trillion shortfall over the same period last year. Overall government revenue dropped 6.6% to CNY15.3 trillion from January to September as the government dolled out more tax rebates to businesses, according to the finance ministry. Fiscal expenditure then rose 6.2% to CNY19.04 trillion in the first nine months, following a government-driven infrastructure push to boost growth and create employment.
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BROKER RATING CHANGES
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Credit Suisse cuts HSBC price target to 585 pence (590p) - neutral
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Barclays cuts THG price target to 50 pence (55p) - equal-weight
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JPMorgan cuts Barratt Developments price target to 490 pence (530p) - neutral
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JPMorgan raises Bellway price target to 2,660 pence (2,640p) - overweight
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COMPANIES - FTSE 100
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Barclays delivered a "strong" third quarter, thanks to a surging performance from its Markets business. In the three months to September 30, pretax profit improved to GBP1.97 billion from GBP1.86 billion the year prior. The bank's credit impairment was increased to GBP381 million from GBP120 million. Total income rose to GBP5.95 billion from GBP5.47 billion, as income at its Barclays UK unit increased by 17% to GBP1.92 billion and Barclays International's was 3% higher at GBP4.07 billion. Chief Executive CS Venkatakrishnan said: "Our performance in FICC was particularly strong and we continued to build momentum in our consumer businesses in the UK and US." Barclays's cost-to-income ratio improved to 60% from 65%.
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Asian-focused bank Standard Chartered saw its profit grow as income was boosted by an improved net interest margin. In the three months to September 30, pretax profit jumped 40% to USD1.39 billion from USD996 million. StanChart upped its credit impairment to USD227 million from USD108 million. Operating income was up 15% to USD4.33 billion from USD3.76 billion, with net interest income rising 11% to USD1.93 billion from USD1.74 billion. Its net interest margin improved to 1.43% from 1.23%. StanChart's cost-to-income ratio also improved, falling to 62.3% including the bank levy from 70.3%.
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WPP's third-quarter revenue rose 10% to GBP3.57 billion, with like-for-like revenue up 2.7%. The advertising and marketing firm noted its revenue less pass-through costs increased 13% to GBP2.99 billion. Chief Executive Mark Read said the firm "continues to show strong momentum". He added: "Our growth over the year has been strong with full year like-for-like revenue less pass-through costs now upgraded to 6.5% to 7.0%."
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Reckitt Benckiser's revenue increased by double-digit percentages in the third quarter, with its Hygiene, Health and Nutrition all seeing strong growth. Total revenue was up 14% to GBP3.74 billion, with like-for-like revenue up 7.4%. "Reckitt delivered another quarter of broad-based growth amidst challenging market conditions, as we continue to innovate and improve on our in-market execution," Chief Executive Nicandro Durante said. "My priority is firmly focussed on continuing to execute on our strategic path, to deliver sustainable mid-single digit growth, and mid-20s adjusted operating margins by the mid-2020s." Reckitt narrowed its like-for-like net revenue growth target for 2022 upward to 6% to 8% from 5% to 8% previously.
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COMPANIES - FTSE 250
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Chemicals firm Elementis said it delivered a "good" performance in the third quarter, with underlying revenue growing by double-digits - boosted by its Personal Care and Coatings businesses. "Overall the group saw strong performances in the Americas, with lower demand in Europe and continuing market weakness in China. The full-year outlook for the group remains unchanged," it added. Chief Executive Paul Waterman said: "We expect the market environment to remain challenging, but are confident that by continuing to execute effectively on our strategy we will make further progress towards achieving our medium-term goals."
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OTHER COMPANIES
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RWS Holdings said its trading for the financial year that ended September 30 was in line with market expectations, with revenue estimated to have grown by about 8%. "This increase reflects solid growth in Language Services and accelerated growth in Language & Content Technology, despite the faster-than-anticipated transition towards SaaS revenues. The IP Services division has traded in line with previous guidance," RWS said.
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By Paul McGowan; paulmcgowan@alliancenews.com
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