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Economic results from FED cuts are uncertain, Tech is mixed

Tech Giants Report Mixed Earnings, China’s Economic Woes Continue

Tech earnings economic mix: Microsoft beats, Alphabet disappoints, China struggles. Nikkei rises, Fed eyes rate cuts, global contrasts persist

Microsoft Beats Estimates, Alphabet Disappoints, Samsung Remains Cautious

The latest earnings reports from the tech sector’s heavyweights, known as the “Magnificent 7,” painted a mixed picture. Microsoft outperformed market estimates, reporting strong profits and revenue thanks to new artificial intelligence features boosting its Azure cloud service. However, concerns about rising costs led to a 1% dip in Microsoft’s shares. In contrast, Alphabet, Google’s parent company, faced a 6% drop in its stock value as holiday-season advertising sales fell short, and the company highlighted increased investment costs in AI-related ventures. Samsung, despite forecasting recovery in memory chips and tech demand, saw a 2% decline in shares due to AI-related concerns and a lower-than-expected fourth-quarter loss.

Adding to the tech sector’s challenges, Tesla shares slid 3% after a Delaware judge rejected Elon Musk’s $56 billion pay package, calling it “unfathomable.” The collective impact led to a retreat in S&P500 futures from record highs, with Nasdaq futures down over 1%.

China Property Market Woes and Manufacturing Contraction

China continues to grapple with economic challenges, as its long-suffering stocks declined by approximately 1%. Manufacturing surveys revealed contraction for the fourth consecutive month, reflecting ongoing struggles with domestic property issues affecting household consumption and business investment. China Evergrande, the most indebted real estate giant, was placed in liquidation, with offshore dollar bondholders facing uncertain payouts in a lengthy process. Unfavorable weather conditions further hindered economic activities around the Lunar New Year, with fog disrupting shipping and snow affecting travel across the country.

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Nikkei Index Rises

In contrast to China’s economic woes, Japanese stocks, represented by the Nikkei index, rose by 0.6%, marking its best January performance in 26 years. The region appears to offer a stark contrast to the challenges faced by its neighbors.

Federal Reserve’s Policy Decision, Strong Economic Indicators

The Federal Reserve’s policy decision took center stage, with expectations of no immediate rate changes. The strong US economic performance was highlighted by an International Monetary Fund forecast upgrade for 2024, predicting a 2.1% growth rate. Positive indicators included an unexpected rise in job openings, bolstering consumer confidence and a robust labor market. Inflation showed signs of subsiding, contributing to a positive outlook.

Interest Rate Cuts Loom, but Timing Remains Uncertain

While the Federal Reserve is expected to move closer to cutting interest rates in the coming months, uncertainty surrounds the timing and pace of such cuts. The decision is influenced by a desire to wait until inflation stabilizes around the 2% target. The economy’s current health, stock market highs, and strong job market create a hesitancy to rush into rate cuts. The central bank’s first rate reduction may occur in May or June, with cautionary comments from Fed officials tempering earlier expectations of a March cut.

Focus on Fed Decision, Earnings Season, and Economic Indicators

On Wall Street, the Fed decision, private sector jobs update, and ongoing earnings season were key focal points. The Fed’s communication about rate cuts and the tapering of Quantitative Tightening is closely watched, with potential adjustments to interest rate guidance. Market expectations of a rate cut in March face uncertainty, with Chair Jerome Powell likely to emphasize the economy’s current strength and downplay the urgency for immediate cuts.

Balance Sheet Discussions and Global Economic Contrasts

Discussions on the Fed’s $7.7 trillion balance sheet and the potential tapering of its quantitative tightening program may add complexity to future monetary policy decisions. Despite global economic challenges, the US economy stands out, with robust growth and low unemployment rates. European counterparts face sluggish growth, and concerns about a recession persist.

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