- FTSE 100 up at the open.
- Robust earnings season overshadowed by tech sell-off.
- Fed decision later today.
- AMD beats forecasts.
- Crude bounces back after Hamas leader killed.
- Microsoft punished for small cloud miss.
- HSBC delivers massive profit beat.
Derren Nathan, head of equity research, Hargreaves Lansdown:
“UK markets have opened higher after a mixed session across the pond. Investors continued to shy away from tech stocks, as nerves remain on edge ahead of further key read outs from the sector this week.
The large holdings of these stocks in institutional portfolios may be causing fund managers to strap in tightly, but when looking at the S&P 500 on an equal weight basis, the market is up nearly 5% over the last month, helped by a relatively robust start to earnings season. As at the beginning of the week, 78% of index constituents who had reported so far had beaten earnings per share forecasts.
Yesterday saw upgrades from pharma giant Pfizer and one of the original fintech companies PayPal. But consumer staples bellwether Procter & Gamble failed to impress as its fourth quarter sales missed estimates by $200m.
Chipmaker AMD reported second quarter earnings after the AMD climbed over 7% in after-market trading. It’s a long way from stealing NVIDIA’s crown as the king of artificial intelligence, but it is making a dent with demand for AI processors helping sales to data centres more than double. Although there remain concerns about the returns being generated by customers investing in this infrastructure.
There’s more action on the earnings front today including updates from Mastercard and Meta. But sentiment is likely to hinge on the outcome of this month’s meeting of the Federal Open Market Committee. Rates are widely expected to be unchanged. However, markets are very confident of a September rate cut and will be looking for further assurance.
Brent crude has clawed back some of its recent losses with prices up over a dollar nearly touching $80 per barrel. This week’s rocket attack on Israel and reports that the leader of Hamas has been killed in Iran mean that tensions in this oil-rich region remain very high.”
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
“This was a good set of results from Microsoft; don’t let anyone tell you otherwise. But cloud growth is all that seems to matter these days, and despite Azure growing 30%, it was a mere 1% lower than expected and that was enough to send the stock lower.
Investors need to remember that megatrends like AI take time, rarely track in a perfect line, and bumps in the road are part of the journey. Names like Microsoft had been priced assuming a near-perfect transition to an AI-dominated world. This is a healthy adjustment of near-term expectations, not the end of the AI trade. Microsoft will still be a leader when the dust settles.
HSBC delivered a massive profit beat as Noel Quinn says goodbye. The beat was split evenly across strength in underlying profitability and lower impairments. Borrowers are clinging on, even improving in some places, despite interest rates that many haven’t had to handle for quite some year, or ever in the case of younger borrowers. The outlook on loan losses is decent too, with management signalling the worst of the Chinese commercial real estate drama now in the rear-view mirror.
A greater focus on Wealth Management is bearing fruit and should allow HSBC to take advantage of the burgeoning middle class in regions like China. There’s also the added bonus of diversification away from interest rates, a key strategic priority over the past few years. With rate cuts expected around the globe, these actions should give Georges Elhedery a strong foundation to work from when he steps up to the CEO seat in September.”
