Capital Idea: Market wrap, 30 October

• Market sentiment turns nasty as high impact week goes awry

• US GDP data solid but PCE figures support case for Fed hikes

• Amazon misses expectations adding to big tech’s tale of woe

It’s turning into a nasty week for global markets, as the slew of event risk that market participants have been forced to tackle yields greater rather than less uncertainty. Tech results have turned into a tale of woe, with Alphabet’s historic plunge following its highly underwhelming results emulated by Amazon after it published its quarterly earnings after the closing bell. Meanwhile, central bankers, while hardly rattling the proverbial cage, continue to guide the markets towards future rate hikes. On top of that, energy markets are pricing in an escalation in the US and Iran war that’s feared will come after US midterms. The midterm elections, as they are wont to do, are stifling market sentiment too.

There are some silver linings, although to some extent they do make for a somewhat “good news is bad news” dynamic. The US economy in the aggregate is irrefutably strong, with last night’s advanced GDP data coming in at 3.4% and above forecasts. The numbers are being bolstered by the AI investment boom. However, resilience amongst households, or at least the wealthier segments among them, means consumption is holding up strong too. The dynamic supported what was somewhat of a rotation in the market overnight, with the sell-off on Wall Street predominantly contained to mega cap tech stocks. But it also supported the case for future rate rises, something that, at the margins, added to by US PCE Index data that revealed a greater than expected lift in headline price growth to 3.6% last month. The more important core measure rose to 3.1% as expected.

The bigger factor determining the nature of the handover to Asian markets this morning will be Amazon’s results. The stock is down in after hoursafter-hours trade, dragging US and Asian futures alike, adding to the bearishness in the region yesterday elicited by disappointing Samsung results. Like Alphabet, Amazon missed earnings expectations, posting EPS of $1.89 versus the $1.97 forecast. Much of that was due to a softer online business rather than AI. However, there wasn’t enough evidence in the results of AI monetisation for the markets to feel upbeat about future growth. Arguably a positive from the results was a lift in future capex intentions to build out greater AI capacity to meet expected strong future demand. However, because that spending was paired with mediocre earnings growth, it just resurfaced doubts about ROI.

(Source: Trading View)

(Past performance is not a reliable indicator of future results)

Asian markets will have their own macro-risk to digest to round out the week. The Bank of Japan sets policy today, with the central bank all but certain to resist the temptation to hike two meetings in a row and keep policy unchanged at 1.25%. However, like almost every other developed market central bank right now, further rate hikes from the BOJ are considered a matter of when and not if. That’s what the markets will be gauging today. The Bank of Japan is expected to declare that it has achieved its inflation target, opening the door to further hikes in the future. It also releases its updated outlook report, which could nudge inflation forecasts higher. The critical issue is how these things influence market pricing for Japanese policy in December and beyond. Right now, a December hike is priced at about an 80% probability.