Morning Wrap: Nasdaq sinks on Alphabet and Microsoft earnings, US dollar tumbles, ASX to rise

The Nasdaq tumbled on weak earnings from Google-parent Alphabet and Microsoft, the US dollar hits a three week low, the Bank of Canada opts for a smaller-than-expected rate hike, Europe doesn't have any space to store gas causing prices to plummet and an education piece about our ETF list and why its useful for ASX investors.

Let's dive in.

US MARKETS

Major US benchmarks sold off aggressively thanks to weaker-than-expected earnings and guidance from heavyweights Microsoft and Alphabet. The big names might've dragged the index lower, but there were still more sectors and stocks advancing than falling.

• 6 out of 11 US sectors advanced

• Energy led to the upside as oil prices rallied

• Communication Services and Tech underperformed due to steep declines from heavyweights Microsoft and Alphabet 

• 57% of stocks higher

• 59% of stocks trade below their 200-day moving average (59% on Wednesday, 66% a week ago)

EARNINGS

• Visa (+4.6%) beat earnings expectations, raised its dividend by 20% and announced a $12bn share buyback program

  • CEO comments: “ ...we saw a continuation of many of the spending trends present throughout 2022: strength in consumer payments, resilience in eCommerce and ongoing recovery in cross-border travel.”

  • No recession: Visa “did not factor in a steep economic downturn or recession,” for 2023 

• Microsoft (-7.7%) beat earnings expectations but PC sales were below expectations. The guidance for the December quarter was weaker than expected, FX impact set to take a 5% toll on FY23 revenues 

  •  Outlook: "Our outlook has many of the trends we saw at the end of Q1 continue into Q2. In our consumer business, materially weaker PC demand from September will continue, and impact both Windows OEM and Surface device results.”

  • Weak PC demand: "In our consumer business, materially weaker PC demand from September will continue and impact both windows OEM surface device results, even as the windows installed base and usage grows.” 

• Alphabet (-9.1%) missed earnings expectations. Some key comments: 

  • CFO on headcount: "... we added 12,765 people in Q3...In Q4, we expect headcount additions will slow to less than half the number added in Q3.”

  • CFO on US dollar: “Looking to Q4 based on the strengthening of the US dollar quarter to date, we expect an even larger headwind from foreign exchange.”

  • Ad market: "We did see some advertisers pulled back in certain areas and search ads ...These pullbacks in spend increased in the third quarter and we also noted lower revenues from a promo spend on Youtube and network."

  • Google cloud: “"In some cases, certain customers are taking longer to decide and some have committed to deals with shorter terms or smaller deal sizes which we attribute to the more challenging macro environment.”

• Spotify (-13%) posted a wider-than-expected loss of -US$228m but subscriber growth and monthly active users surpassed guidance expectations

WORLD NEWS 

• Bank of Mexico nears end of rate hike cycle (Reuters)

• Apple in the way of Spotify audio books (New York Times)

• Bank of Japan ramps up bond buying (Reuters)

• US dollar hits three week low as traders weigh Fed pivot (Bloomberg)

ECONOMY

Canada raised interest rates by 50 bps to 3.75%

•  Below consensus expectations of a 75 bp hike

• “The effects of recent policy rate increases by the Bank are becoming evident in interest-sensitive areas of the economy: housing activity has retreated sharply, and spending by households and businesses is softening,” the Bank of Canada said in a statement  

• "The global monetary narrative continues to evolve in a more dovish direction as some of the early hikers reach the end stages of their tightening … RBA started the process ... Canada continued the theme ... Fed is likely to follow suit ... bullish for stocks,” said Knowledge Vital

US new home sales fell -10.9% month-on-month in September to 603,000 units

• Ahead of expectations of a decline to 585,000 units

COMMODITIES

• Iron ore futures rose 0.2% to US$93.5 a tonne

• Oil prices rallied “after the EIA crude oil inventory report showed exports surged to a record high and gasoline demand bounced back,” said Oanda senior market analyst, Ed Moya

• Gold inched slightly higher as the US dollar tumbled and bond yields eased 

  • “The Bank of Canada’s dovish surprise was good news for gold …​ Expectations are growing for the Fed to shift to a half-point pace in December and if that seems more likely after next week, gold could have a nice breakout above the $1700 level,” said Moya

Other commodities of interest:

• Aluminium +5.1% to US$2,324/t

• Copper +4.4% to US$3.55/lb

• Platinum +4% to US$951/oz

• Newcastle coal futures -2.7% to US$375/t

QUICK BITES

• US GDP estimates: "With Atlanta Fed 3Q22 GDPNow estimates up again at 3.1%, Fed is likely to use this as ammo to justify "strong economy" and further hikes. 75 bps still base case for November," said the Special Situations Research Newsletter

• European gas collapse: "The collapse in European gas prices isn't about an abundance of gas. It's about lack of storage. Nothing about the fall in gas prices - whether in spot or one year ahead - makes things in February or next winter easier. Because we can't store all this cheap gas," said Robin Brooks, Chief Economist at the Institute of International Finance

• A tumbling US dollar: The US Dollar Currency Index is down -4.4% from recent highs. A depreciating dollar puts upward pressure on commodities, which re-ignites inflation

Find out more about our ETF list and why its useful for ASX investors.

Hello, me again. I've created an explainer page about our ETF list above and why its useful for ASX investors (link above). If you have any further questions or questions you think are worth adding to the article, let me know.

We're in for another cautiously optimistic session, with SPI futures pointing to a +0.38% open. On one hand, the weakness in US markets was rather isolated to tech heavyweights Microsoft and Alphabet.

But its worth acknowledging that a weaker-than-expected result from Alphabet and weak guidance from Microsoft might have bigger implications and themes to note for the broader economy and corporate earnings.

That aside, there were quite a few positives for markets overnight, including:

• Bank of Canada joins the RBA in slowing the pace of rate hikes

• US dollar tumbles, down -4.4% from recent highs

• US bond yields (2s and 10s) ease

Sectors to watch

Overnight ETF gainers: Aluminium (+4.67%), Copper (+4.47%), Solar (+4.18%), Hydrogen (+2.32%), Uranium (+2.29%)

Overnight ETF losers: Cloud (-2.2%)

Commodities: A handful of commodities including oil, aluminium, copper and platinum rallied more than 3% overnight thanks to a weaker US dollar. When the dollar falls, commodities become cheaper in other, non-dollar currencies, which tends to have a positive impact on demand.

Its also worth noting that US-listed Rio Tinto (ASX: RIO) and BHP (ASX: BHP) rose 3.38% and 2.8% in overnight trade.

US Dollar Currency Index (Source: TradingView)

Stocks going ex-dividend over the next week:

• Thu: Bank of Queensland (BOQ), Acrow (ACF), Genusplus (ASX: GNP) 

• Fri: 360 Capital Enhanced Income Fund (TCF), Gryphon Capital Income Trust (GCI)

• Mon: Autosports (ASG)

• Tue: Brickworks (BKW)

• Wed: Event Hospitality and Entertainment (EVT) 

See all upcoming ex-dividend stocks

ASX corporate actions occurring today:

• Dividends paid: Clime Investment (CIW), Austin Engineering (ANG), Ridley Corp (RIC), 360 Capital REIT (TOT), Australian Unity Office (AOF), Turners Automotive (TRA)

• Listing: Conrad Asia Energy (CRD) 

Other things of interest (AEDT):

• 5:00 pm: Germany consumer confidence

• 11:15 pm: Eurozone interest rate decision

• 11:30 pm: US durable goods orders

• 11:30 pm: US Q3 GDP growth