Morning Note: Market news and an update from Amazon.
Market News
Gilts continued to fall in the aftermath of the UK Budget – the 10-year yield is currently 4.50%, having hit 4.56% yesterday – with the fight against inflation potentially taking longer than expected. The Bank of England is still expected to lower borrowing costs by another 25bps next week. However, traders now bet on three quarter-point cuts by the end of 2025, compared with five last week. Sterling fell to $1.2895 and €1.1860.
The Commerce Department's personal consumption expenditures (PCE) price index, closely watched by the Federal Reserve, increased by 2.7% (excluding food and energy), a touch above forecast. Further data is out later today – October non-farm payrolls (estimate is 105k) and the unemployment rate (estimate is 4.1%). The Fed may “look through” a weak reading as hurricane-related and is widely expected to cut rates by 25 bps at next week’s meeting. The 10-year Treasury yield ticked lower to 4.28%. Gold slipped to $2,750 an ounce.
US equities fell heavily last night – S&P 500 (-1.9%); Nasdaq (-2.8%) – to record their first monthly loss since April after technology heavyweights Microsoft and Meta Platforms reported earnings that failed to impress investors. After hours, Amazon (see below) rose by 6% on strong earnings, while Apple slipped on the back of consumer weakness in China.
In Asia this morning, equities were mixed: Nikkei 225 (-2.6%); Hang Seng (+0.9%); Shanghai Composite (-0.2%). Caixin’s China manufacturing PMI climbed to 50.3 in October, exceeding estimates. The FTSE 100 is currently trading 0.2% higher at 8,135. Reckitt Benckiser is trading up 10% following a positive legal outcome regarding its infant formula products.
Brent Crude rallied to $74.20 a barrel after Axios reported that Tehran is preparing a major retaliatory strike on Israel within days. This provided some support for the oil majors. ExxonMobil and Chevron report today.
Source: Bloomberg
Company News
Last night, Amazon released strong Q3 results and guidance for the current quarter in line with market expectations. In response, the shares rose by 6% in after-hours trade.
Amazon is the global leader in e-commerce and public cloud computing services. The group has pioneered products and services such as Prime, Amazon Web Services (AWS), Kindle Direct Publishing, Kindle, Fire tablets, Fire TV, Amazon Echo, and Alexa. The company plays to the ongoing shift to online retail and the growth in cloud storage.
In the three months to 30 September, net sales increased by 11%, excluding currency movements, to $159bn, a touch ahead of the $157bn expected by the market. By division, North America sales grew 9% to $95.5bn, while International sales grew 12% to $3.9bn.
AWS, the cloud business reported as a separate division, grew 19% to $27.5bn, driven by growing enterprise spend on AI. Although growth was slower than rivals Google and Microsoft, it was in line with expectations and leaves the business in excess of a $110bn annual revenue run rate. During the quarter, the company launched new generative AI-powered features, including Rufus, a generative AI expert shopping assistant.
The group also announced plans to expand Amazon Pharmacy Same-Day Delivery of medications to nearly half the US in 2025 and launched an all-new Kindle lineup that is significantly outperforming expectations.
Group operating income rose from $11.2bn to $17.4bn, while generated net income per diluted share was up 52% to 143c, well ahead of the market forecast of 1.14c. Adjusted free cash flow for the trailing twelve months rose from $20.2bn to $46.1bn.
The group provided guidance for the current quarter to 31 December. Net sales are expected to grow by 7%-11% to between $181.5bn and $188.5bn, in line with the current market forecast of $186bn. Operating income is expected to be between $16bn and $20bn (vs. $13.2bn last year). This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.
Source: Bloomberg