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US Markets Analysis and ECB’s Dilemma

US Markets Analysis and ECB's Dilemma

US markets took their cues from a negative reaction to the latest Q3 numbers from Google owner Alphabet. As saw its biggest one-day loss since March 2020, due to a slight miss on its cloud revenues. This in turn saw the Nasdaq 100 fall to 4-month lows. Which the rest of the tech sector got sold off heavily. That include Facebook owner Meta Platforms, whose shares fell over 4% ahead of the release of their Q3 numbers.

After a disappointing day, Meta’s latest Q3 numbers were crucial in reversing negativity. Q3 revenues exceeded forecasts at $34.15 billion, with profits of $11.58 billion or $4.63 per share. Operating expenses also dropped by 7% to $20.4 billion, and the company lowered its annual expenses estimate to $87-89 billion.

Q4 revenues are forecast to come in at $36.5-40bn. No end in sight for the losses in Reality Labs which may continue year over year. There was another $3.7bn of losses during the quarter, taking losses year to date to -$11.47bn. Q3 revenue here came in at $210m, pushing total revenue year to date to $825m.
But last night’s slide in US markets and a similar decline in Asia, looks set to translate into a lower European open. That ahead of another big macro day with the ECB and US Q3 GDP set to be the major focus.

The ECB’s September Rate Hike: Surprises and Challenges

Away of US markets, European markets succeeded in achieving a modest gain. That was during what ultimately proved to be a somewhat volatile trading session.

ECB decision to hike rates back in September to a record high of 4.5% was somewhat of a surprise. That comes given some of the narrative that had been coming from ECB President in the lead-up to the decision.

There are disagreements within the governing council about where the euro area’s monetary policy should go. The northern countries, especially Germany, want to maintain the current pressure to prevent inflation from rising, even though the headline rate has fallen recently.

Also Read: EUR/USD Declines Below 1.0600 Amid Heightened Market Caution

One week after the decision to increase rates in September, Martins Kazaks, the Governor of the Bank of Latvia, said that the rate hike was the right move. He also mentioned that there could be more rate increases in the future. That because of the risks related to higher energy costs and increased real income.

Away from September press conference was one of a wait and see approach from here on in given the downgrade to growth forecasts. Good to mention it saw 2023 moved down to 0.7% from 0.9%. While in 2024 from 1.5% to 1%, while inflation revised upwards to 5.6% in 2023 and 3.2% in 2024.

ECB President Lagarde has been at pains to insist that the ECB isn’t done on the rate hike front. The ECB would be foolhardy in the extreme to hike rates again in a week that has seen economic data show little signs of picking up. It’s already almost certain that Q3 saw the EU economy slide into contraction. While the latest October data has shown little sign that is likely to change.

Resilient US Markets: Q3 GDP, Consumer Spending, and Rate Hike Expectations

the US Markets still showing remarkable resilience even after multiple rate hikes. Today released the first iteration of Q3 GDP. Recent data shows today’s numbers will confirm that the US economy has grown at the fastest rate since Q4 of 2021.

That over double the rate of Q1 and Q2.

which could pose problems for the Federal Reserve when they meet to decide whether to hike rates, or perhaps wait until December.

In Q1 the US economy managed to grow by 2.2%, followed by 2.1% in Q2. The final revision in Q2 saw personal consumption revised substantially lower to 0.8% from 1.7.

The slowdown in consumer spending during Q2 was a little worrying given how much of the US economy is driven by consumption. However the retail sales numbers during the summer suggest we’ve seen a strong rebound since then.

Nonetheless there was also a sharp revision higher for business investment in factories as the trickle-down effect of the inflation reduction act started to kick in.

Growth estimates for today’s Q3 numbers are higher, with estimates as high as 4.5%, given how strong retail sales have been between July and September, with personal consumption expected to come in at 4%. On prices we’re expecting to see a slowdown from 3.7% to 2.5%.

The robust job market and strong earnings in U.S. create a chance that today’s favorable data may lead to higher yields. This could signal the potential for an additional rate hike before the year’s end as the market adjusts its expectations.

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Please note that this article serves solely for informational purposes. As such, it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.


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