Alphabet shares spike despite downbeat earnings

The news shaping the markets today

Ukraine’s President Volodymyr Zelenskyy said around 40,000 Russian soldiers had been killed in the ongoing war between Moscow and Kyiv. Continued geopolitical tensions sent WTI crude oil prices higher this morning.

Thailand reported a trade deficit of $1.53 billion in June, versus a year-ago surplus of $1.18 billion. This being the third straight month of trade deficit exerted pressure on the THB/USD forex pair.

Australia’s annual inflation rate accelerated to 6.1% in the second quarter, from 5.1% in the previous quarter. This was the highest reading since the second quarter of 2001 and sent the AUD/USD pair lower in forex trading this morning.

China’s industrial profit rose by 1% year-over-year to 42.70 trillion yuan during the first half of the year. Despite this, the CNY/USD forex pair remained under pressure.

Taiwan’s consumer confidence index fell to 63.05 in July, from 64.14 in the previous month. This being the weakest reading since November 2009 sent the TWD/USD pair slightly lower in forex trading this morning.

What’s happening: Shares of Google-parent Alphabet gained in after-hours trading on Tuesday, despite the company reporting downbeat earnings for its second quarter.

What happened: Although Alphabet missed revenue expectations by a small margin, upbeat revenues from one of its major segments provided support to investor sentiment.

The Mountain View, California-based company’s bottom line was impacted by severe macroeconomic headwinds during the quarter.

How were the results: The world’s biggest seller of online advertising reported growth in revenues for the second quarter, but the figure still came in slightly below market views.

• Revenues grew 13% year-over-year to $69.7 billion, falling slightly short of market expectations of $69.88 billion.
• Profits fell to $16 billion, or $1.21 per share, missing the consensus estimate of $1.29 per share.

Why it matters: Alphabet’s results were impacted by several macro issues, including product shortages, easing demand and rising prices of fuel and other items.

However, Alphabet reported strong revenues from Google search ads, which assured investors that this tech behemoth may be able to weather wider economic headwinds much better than its smaller peers.

The company’s revenues from Search and Other segment surged 13.7% year-over-year to $40.7 billion, beating market estimates of $40.15 billion. Revenues from YouTube came in at $7.34 billion, up 4.8% from a year ago, against expectations of $7.5 billion. Google Cloud revenues also jumped sharply by 35.6% to $6.28 billion in the second quarter but missed market views of $6.4 billion.

The Google Services segment recorded revenues of $62.84 billion, representing a 10.1% increase from a year ago. Google Network revenues rose 8.7% year-over-year to $8.26 billion.

The company said currency fluctuations had negatively impacted its overall sales, with 55% of revenue being generated from outside the US.

How shares responded: Alphabet’s shares gained 5% to reach $110.25 in after-hours trading, following the release of quarterly results, after declining 2.3% during the regular trading session. Alphabet completed a 20-for-1 stock split on July 15, which exerted pressure on the stock. The company’s shares have lost more than 28% over the past six months.

What to watch: Investors will continue monitoring the currency swings and other macro issues, including rising inflation and product shortages.

The markets today

The US dollar will be in focus today ahead of the Federal Reserve’s interest rate decision

Context: The US dollar moved higher on Tuesday after recording losses for three straight sessions.

Details: The US dollar index, which measures the greenback’s performance versus a basket of major currencies, recorded gains ahead of the much-awaited policy statement from the Federal Reserve.

The Fed had boosted its funds’ rate by 75bps to 1.5%-1.75% at its June meeting, higher than the 50bps widely expected, in a bid to combat surging inflation.

US consumer prices climbed 9.1% year-over-year in June, recording the biggest 12-month surge since 1981, accelerating from 8.6% in May.

Risk-off sentiment also provided some support to the greenback as US stocks traded lower following a profit warning from Walmart, which is considered the bellwether for the retail sector. The Dow Jones index fell around 200 points to close at 31,786.24 on Tuesday.

Prospects of further cuts in Russia’s gas supply also weighed on the EUR/USD forex pair. Russia’s Gazprom said gas flows through the Nord Stream 1 pipeline to Germany would decline to 33 million cubic metres a day as of Wednesday.

The US dollar index gained around 0.7% to reach 107.19 on Tuesday, while the EUR/USD pair fell around 1% to close at 1.0119.

What to watch: Traders await the Fed’s interest rate decision today, with the central bank expected to increase rates by another 75bps.

The release of other economic reports, including durable goods orders, trade balance and wholesale inventories, will also remain in focus today.

Other Markets: European trading indices closed mostly lower on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.01%, 0.86%, 0.42% and 0.03%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Germany’s GfK consumer climate indicator, France’s consumer confidence index, initial jobless claims and unemployed persons, Eurozone’s loans to households, loans to non-financial corporations and money supply M3, Italy’s consumer confidence and manufacturing confidence, Mexico’s balance of trade, US MBA mortgage market index, pending home sales, crude oil inventories, gasoline stocks and distillate fuel production, India’s money supply M3, Russia’s unemployment rate, real wages, retail sales, corporate profits, industrial output, business confidence and GDP, as well as China’s foreign direct investment.