European shares and US stock futures dropped on Friday following a brutal week for the world’s biggest tech companies, capped by lower than expected revenue forecasts from Amazon.
The Stoxx Europe 600 lost 1.1 per cent in early trading, while London’s FTSE 100 fell 0.9 per cent. Contracts tracking Wall Street’s benchmark S&P 500 fell 1 per cent, and those tracking the tech-heavy Nasdaq 100 fell 1.4 per cent.
Frankfurt-listed shares of Amazon were down 12 per cent after the company warned late on Thursday that consumer spending was in “uncharted waters”. The big tech group, seen as a modern-day bellwether for the US economy, said it expected revenues to come in between $140bn and $148bn in the fourth quarter — as much as $15bn less than the figure forecast by analysts.
The announcement from the US ecommerce group extended a surprisingly weak earnings season from tech behemoths, defying hopes that these companies would be more resilient to a challenging economic backdrop. Shares in Microsoft, Alphabet and Facebook owner Meta have fallen in recent days as rising costs and slowing economic growth begin to take their toll on earnings.
Still, the major US equity markets are up for the week.
Jeff O’Connor, head of market structure for the Americas at Liquidnet, said money was likely to pour back into stocks once inflation and interest rates had clearly peaked. “We’re looking at cash levels for money managers at highs that we haven’t seen in 20 years,” O’Connor said. “When money starts to rotate back into the equity market, it’s going to be explosive.”
The Federal Reserve has led the charge on tightening monetary policy aggressively this year in a bid to curb inflation — raising interest rates by an extra-large 0.75 percentage points at each of its past three meetings to a target range of 3 to 3.25 per cent. Markets are pricing in an increase of similar magnitude for November.
Data on Thursday showed that the US economy expanded by a greater than expected 2.6 per cent on an annualised basis in the third quarter, having contracted over the first six months of the year. However, the headline figure concealed a softening of domestic consumer demand.
The Fed’s preferred inflation metric, the core personal consumption expenditures index, is later on Friday expected to show an increase of 0.5 per cent month on month for September, down from 0.6 per cent in August.
In government bond markets, the yield on the 10-year US Treasury note added 0.04 percentage points to 3.98 per cent as its price edged lower. The yield on the 10-year German Bund rose 0.06 percentage points to 2.04 per cent.
The moves came a day after the European Central Bank raised interest rates by 0.75 percentage points for the second consecutive meeting to their highest level since 2009 in an attempt to dampen rapid price growth.
In Asia, Chinese stocks fell sharply, resuming a descent that began after President Xi Jinping tightened his grip on power at the Communist party congress last weekend. Hong Kong’s Hang Seng index was down 3.9 per cent, while China’s CSI 300 fell 2.5 per cent.
