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Investors unimpressed by Microsoft’s earnings beat

 

Wednesday, January 25, 2023

The news shaping the markets today

The US is looking to send M1 Abrams tanks to Ukraine to help the country in its war with Russia. The safe-haven US dollar index fell slightly this morning.


Australia’s annual inflation rate accelerated to 7.8% in the fourth quarter, from 7.3% in the previous quarter. The AUD/USD forex pair gained on prospects of rate hikes by the central bank.


New Zealand’s inflation rate came in unchanged at 7.20% year-over-year in the fourth quarter, sending the NZD/USD pair lower in forex trading this morning.


The American Petroleum Institute said that US crude stockpiles had increased by 3.378 million barrels in the week ended January 20, after an increase of 7.615 million barrels in the prior week. Despite this, WTI crude oil futures traded higher this morning.


Argentina’s economic activity estimator rose by 2.6% year-over-year in November, after a 4.5% increase in the prior month. The ARS/USD pair remained flat in forex trading this morning.

 

What’s happening: Shares of Microsoft Corporation edged lower in after-hours trading on Tuesday, after the company released results for its second quarter.

What happened: The tech company reported better-than-expected earnings for its latest quarter on Tuesday.

However, Microsoft warned of a deceleration in one of its major businesses in the current quarter.

How were the results: The Redmond, Washington-based company reported revenue growth of 2% for the three months ended December 31, which was the slowest in six years.

  • Sales rose to $52.7 billion, but missing the consensus estimates of 52.9 billion.
  • Profits contracted by 12% to $16.4 billion, while adjusted earnings declined 6.5% to $2.32 per share, coming in above Wall Street expectations of $2.30 per share.

Why it matters: Last week, Microsoft had announced plans to lay off 10,000 workers. The company recorded $1.2 billion, or $0.12 per share, in charges in the latest quarter, with around $800 million of this linked to the job cuts.

The tech giant’s layoff decision was followed by big job cuts at Amazon and Meta Platforms.

The company had generated double-digit revenue growth for years, driven by its surging cloud business. However, growth slowed significantly in the latest quarter amid broader concerns around the economy.

Revenues at Microsoft’s flagship cloud division, Azure, surged 31% year-over-year, which exceeded market estimates, but marked a slowdown from the mid-to-high 40% range that it had been able to achieve in previous quarters.

The productivity and business division’s revenues grew 7% to $17 billion, while Intelligent Cloud revenues gained 18% to reach $21.5 billion.

Personal Computing revenues fell 19% to $14.2 billion, amid a continuous shrinkage in the PC market. Windows OEM revenues contracted by 39% year-over-year, with Xbox revenues declining 12%.

Microsoft said sales growth is likely to slow by 4 or 5 points from the end of the second quarter at its Azure cloud computing business. The company also warned of a further slowdown in corporate software sales.

How shares responded: Microsoft’s shares gained more than 4% during the regular trading session on Tuesday but fell by 1% to $239.58 during the extended hours. The stock has added around 2% over the past month.

What to watch: Investors will continue monitoring Microsoft’s cloud business, one of the major growth drivers for the company.

The markets today

The Canadian dollar will be in focus ahead of the central bank’s interest rate decision

Context: The CAD/USD forex pair declined slightly on Tuesday as the uptrend in stocks lost some steam.

Details: European stock markets eased after data on business activity increased speculations of the ECB raising rates by another 50 basis points at its upcoming meeting. US stock markets also remained cautious for most of the session. The Dow Jones index closed higher by 70 points, while the S&P 500 fell 0.1% on Tuesday.

A decline in the price for oil, one of Canada’s major exports, also exerted pressure on the loonie. WTI crude oil for March delivery declined by $1.49 to $80.13 per barrel on Tuesday amid concerns over a slowdown in the global economy.

The CAD/USD forex pair fell slightly to 1.3371 on Tuesday. The loonie has mostly traded sideways after climbing to a seven-week high of 1.3320 earlier this month.

The S&P/TSX Composite Index declined by 0.01% to settle at 20,629.55 on Tuesday, erasing gains from the previous session.

What are expectations: Traders await the Bank of Canada’s interest rate decision today, with the central bank scheduled to issue minutes from its meeting for the first time ever. The BoC had raised the target for its overnight rate by 50bps to 4.25% at its last meeting of 2022 and is expected to hike the rate to 4.50% today.

The release of manufacturing sales data from Canada will also remain in focus today. Analysts expect manufacturing sales to decline 0.9% in December, after a flat reading in November.

Other Markets: European indices closed mostly lower on Tuesday, with the FTSE 100, DAX 40 and STOXX Europe 600 down by 0.35%, 0.07% and 0.24%, respectively, and the CAC 40 up by 0.26%.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD  – 1.0896 and 1.0903 Negative
EUR/JPY – 141.84 and 141.96 Positive
WTI Crude Oil – 80.40 and 80.62 Negative
Natural Gas – 3.022 and 3.042 Negative
S&P 500 – 4015.28 and 4022.54 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0898, 0.09%) Dow ($33,758, -0.20%) Brent ($86.58, 0.4%)
GBP/USD (1.2326, -0.02%) S&P500 ($4,017, -0.38%) WTI ($80.33, 0.3%)
USD/JPY (130.28, 0.08%) Nasdaq ($11,824, -0.72%) Gold ($1,934, 0.2%)

What else to watch today

Saudi Arabia’s balance of trade, Turkey’s manufacturing confidence index and capacity utilization, UK’s input producer prices and producer prices change, European Central Bank’s non-monetary policy meeting, Spain’s producer prices change, Germany’s Ifo business climate indicator, Ifo current conditions indicator and Ifo expectations indicator, Brazil’s FGV consumer confidence index, France’s Initial Jobless Claims, and unemployed persons, Mexico’s economic activity, US MBA Mortgage applications, crude oil stocks change, gasoline stocks, distillate stocks, Russia’s producer prices, as well as Argentina’s interest rate decision and retail sales.


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