Earnings season took a turn for the positive in U.S. stock markets as three technology bellwethers announced stronger-than-expected results. Redmond, Washington-based Microsoft Corp., Seattle-based Amazon.com and Palo Alto, California’s Alphabet (Google’s parent) each reported strong sales for cloud-based products for the three months ending in September. Adjusted profits per share came in at $0.67 for Microsoft versus consensus estimates of less than $0.60 on strong demand for Internet-based products. In a sign of the times, the once dominant PC division of Microsoft realized a nearly 20 percent sales decline versus the same quarter last year. Alphabet announced a $5.1 billion buyback to capitalize on a cash balance that now exceeds $72 billion, after adjusted revenues for the recent quarter grew at a pace of 15 percent year-over-year. Meanwhile Amazon.com recorded a 78 percent gain in its cloud-based Web services unit that helped propel the firm to a $0.17 per share profit versus a loss of $0.95 during the same quarter in 2014. The strong showing by the big three of U.S. tech combined with dovish rhetoric from the European Central Bank contributed to a feel-good rally for most developed world indexes on Friday morning.
Chinese investment bank IPO back on track. Local media sources today reported that China International Capital Corp., a dominant mainland full-service investment bank, will place a targeted $900 million in a Hong Kong initial public offering after the sudden selloff in equity markets scuttled proposals for a float earlier in the year. More than half of the IPO shares will reportedly be placed with a consortium of institutions that includes Newark, New Jersey-based Prudential Financial.
More European yields fall below zero. Comments by European Central Bank President Mario Draghi at the conclusion of the central bank’s monthly policy meeting in Malta sent sovereign bonds higher, with yields for German debt dipping to levels below zero out the curve to a six-year duration while Spain and Italy’s two-year Treasury yields contracted to negative territory as well. In his speech Draghi promised to deploy new stimulus measures before year-end if deflationary pressures continued to drag on the common-currency zone’s economy.
Mixed PMI data in Europe. The Markit purchasing-manager index data for Germany revealed a strong divergence in October with the manufacturing benchmark falling to 51.6 in the slowest showing since spring, while the services-sector index climbed to 54.5. The aggregate euro zone composite index fared better than forecast at 54, but softer forward indicators cast a shadow over the data.
Regulators scrutinize dark pools. Media reports based on anonymous sources suggest that two operators of so-called “dark pool” trading facilities are close to a settlement with regulators. Swiss—bank Credit Suisse Group and London-based Barclays may pay as much as $150 million in combined fines to resolve allegations that the private trading venues they operated provided unfair advantages for some clients.
Portfolio Perspective: Was that Normal? — Bob Savage, CCTrack Solutions
The ECB induced risk rally yesterday that continues today has become “normal” for many investors. This is the moral hazard of central bankers as they provide an implicit put onto equity markets and by correlation FX and commodities — all by playing with the bond market and expectations about rates. The markets in Europe now price in a negative rate — just one of the tools that no doubt was discussed by the ECB yesterday should they need a new bazooka in December. Most analysts don’t think this happens but the market prices it anyway — and that is the trouble.
Robert Savage is the chief executive officer of CCTrack Solutions in New York.
