Welcome to the Markets Weekly Update. The column is committed to delivering essential investing insights for the week and key events that could move markets in the week ahead.
Macro Matters
US
Fed Approves Quarter-Point Rate Hike, Signals More Increases Likely.
The Federal Reserve approved a quarter-percentage-point interest-rate increase and signaled plans to raise rates again next month to continue lowering inflation. The decision Wednesday followed six consecutive larger rate rises, including an increase of a half point in December and 0.75 point in November. "The committee anticipates that ongoing increases" in interest rates "will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive," said the statement, using the same language included in policy statements since last March.
Fed Traders See Pivot From Rate Hikes to Rate Cuts in Second Half.
Traders in the interest rate swaps market have concluded after the Federal Reserve rate decision that policy direction is set for a deeper dovish pivot from the middle of this year. Swap contracts tied to this year’s Fed meetings show approximately 50 basis points of rate cuts are now firmly priced between the June policy peak of 4.90% to the 4.40% overnight lending rate tied to the December policy meeting. For the next March policy meeting, just 21 basis points of rate hike premium is now priced, suggesting odds of 84% that the Fed will go another quarter-point.
Jobs Report Shows Blowout 517,000 Gain in U.S. Employment in January
The number of new jobs created in January rose by 517,000 to mark the biggest increase in six months, suggesting persistent strength in a dynamic U.S. labor market. The unemployment rate slid to a 54-year low of 3.4% from 3.5%, the government said Friday. That’s the lowest level since 1969.
Service Sector Rebounds Strongly in January, ISM Survey Shows
An ISM barometer of business conditions at companies such as restaurants and hotels rebounded to 55.2% in January after falling into contraction of 49.6 in the prior month. Numbers over 50% indicate expansion in the economy.
Nasdaq Has Best January in Over 20 Years.
The Nasdaq is up 10.7% this month, marking its best January performance since 2001, according to Dow Jones Market Data. This year's Jan performance has surpassed the 2001 return of 9.7%. Market sentiment was helped by data that provided more evidence for the Fed that wage inflation is cooling.
AU
Australia Retail Sales Post First Fall of 2022; Yields Drop.
Retail sales crashed 3.9% in December, defying consensus expectations for a 0.2% decline.
A surprisingly sharp drop in December retail sales shows Australian households are feeling the squeeze from higher prices and rising mortgage costs, says KPMG senior economist Sarah Hunter.
IMF Sees Australia ‘Soft Landing,’ Cuts Economic Growth Forecast.
“Australia’s economy is expected to come to a soft landing in 2023, although risks are skewed significantly to the downside,” IMF staff said in the concluding statement of their Article IV mission released on Thursday.
The fund expects the A$2.2 trillion ($1.6 trillion) economy to expand 1.6% this year, down from an October forecast of 1.9%, and cut its 2022 estimate to 3.6% from 3.8%. Inflation is seen staying elevated at 5.5%, up from October’s 4.8%.
Sector Highlights
US
Wall Street Is Obsessed With ChatGPT. These Are the AI Stocks to Watch.
The massive popularity of OpenAI’s ChatGPT tool has generated a lot of excitement about the potential use cases for AI since it debuted late last year. Microsoft Corp. is investing $10 billion in OpenAI, which needs funding and cloud-computing power to run increasingly complex models. Microsoft said it plans to use OpenAI’s models in current and future products.
AU
Insurers Hit With Thousands of Claims as Rains Soak New Zealand.
Major insurers operating in New Zealand including Insurance Australia Group (IAG) and Suncorp Group have cumulatively received over 9,000 claims so far following severe storms and flooding in and around the biggest city, Auckland.
Shares of IAG dropped 3.74% on Monday, heading for its worst session in 15 months.
Top Corporate News
US
Apple Reports 1Q 2023 Results: $30.0B Profit on $117.2B Revenue Amid 'Challenging Environment'.
Apple announced financial results on Thursday for the first fiscal quarter of 2023, which corresponds to the fourth calendar quarter of 2022. For the quarter, Apple posted revenue of $117.2 billion and net quarterly profit of $30.0 billion.
The quarter was a stunning miss by Apple, and its first earnings miss versus consensus expectations in almost seven years. Chief Executive Tim Cook said on Apple’s earnings call that he believes the company would have shown iPhone sales growth in the quarter had it not been for the supply constraints.
Amazon Posts Solid Sales But Softer Cloud Growth.
Amazon posted stronger than expected sales for the 2022 holiday shopping season, but shares fell in after-hours trading on slowed growth for its cloud computing division, AWS.
Overall, net sales for the ecommerce group, which has been battling cost-conscious consumers and spiralling costs, were $142.2bn in the three months to December 31, up 9 per cent from 2021 and exceeding analysts’ estimates. But operating income for AWS, its largest profit driver, dropped marginally on the prior year. Sales growth fell to 20 per cent, compared to 40 per cent a year earlier.
Alphabet Misses on Earnings Expectations, as Ad Revenue Falls.
Alphabet missed on both top and bottom lines when it reported fourth quarter earnings after the bell Thursday. Alphabet, like Meta and Snap, is working to overcome a slowdown in the digital advertising market. YouTube advertising revenue down 8% from $8.63 billion the year prior.
Google Cloud brought in $7.32 billion, a 32% increase from the year prior. It also cut its losses dramatically, from $890 million a year ago to $480 million in Q4.
Meta Platforms Stock Rises After Posting Upbeat Outlook for Coming Year.
Meta’s shares soared 20% in after-hours trading on Wednesday as the company pointed to early signs of improvement, including a reduced estimate for costs in 2023 and a forecast that first-quarter revenue could reach as high as $28.5 billion. The company said it would buy back an added $40 billion in shares.
Meta reported quarterly revenue of $32.2 billion, or a drop of 4.5% compared with a year ago and the third consecutive quarter of declining sales. Still, the sales figure was ahead of Wall Street estimates.
AMD’s Profit Plunges But Stock Price Shines Through Intel’s Dark Cloud.
AMD reported Tuesday a 98% decline in net income for the fourth quarter as operating expenses more than doubled and sales linked to its PC clients were cut in half. The company said the decline was mostly linked to its acquisition of semiconductor company Xilinx Inc.
Overall revenue of $5.6 billion slightly beat Wall Street’s forecasts thanks to strength in the company’s videogame business. Battered results from AMD still compared favorably with even bleaker numbers from its archrival last week. Intel’s fourth-quarter revenue missed Wall Street’s already-downbeat forecasts, and the company projected a historic plunge of 40% year over year for the first quarter.
GM to make $650M equity investment in Lithium Americas, co-develop Thacker Pass.
Lithium Americas rose 14% Tuesday after announcing with General Motors they will jointly invest to develop the Thacker Pass mine in Nevada, the largest known source of lithium in the U.S.
GM will make a $650M equity investment in Lithium Americas, which the companies say represents the largest-ever investment by an automaker to produce battery raw materials.
Atlassian Shares Plunge After Another Quarterly Loss.
Atlassian shares fell 13% in after hours markets after its guidance for sales of $US910 million in the March quarter missed analysts’ forecasts.
For financial 2023, Atlassian now forecasts total revenue growth of around 25% over financial 2022.
Upcoming Economic Data
What to Watch for Industry & Company
