By Geoffrey Smith
Investing.com -- Facebook owner Meta sheds another $65 billion in value after another expensive quarter. It's now up to Apple and Amazon to rescue Big Tech's earnings season. The U.S. will report third quarter GDP figures which are almost certain to be highly misleading, while jobless claims and durable goods orders are also due. Stocks are set to open mixed, with more bumper earnings from the oil and gas sector overnight supporting value over growth. The European Central Bank is set to raise its key rate by 75 basis points again. And oil prices rise amid reports that the G7 is close to giving up on its plans to cap the price of Russian oil. Here's what you need to know in financial markets on Thursday, 27th October.
1. Reality check for Meta
Actual reality, rather than the virtual sort, caught up with Meta Platforms (NASDAQ:META) after the Facebook owner reported another quarter of falling revenue, without any sign that its big bets on the so-called Metaverse are close to paying off. Revenue will also fall nearly 10% short of consensus forecasts in the current quarter, at around $30 billion by Meta's estimates.
Meta stock fell over 20% in premarket trading after the company said it expects its costs to rise by over 14% as it continues to plow money into what it hopes will be online meeting place of the future. The challenges posed by a weakening ad market, competition from TikTok, Apple's (NASDAQ:AAPL) data policies, and broader regulatory issues suggest that margin compression is likely to extend into next year. Founder and CEO Mark Zuckerberg asked investors for 'patience'.
2. US Q3 GDP report
The U.S. economy rebounded from six months of contraction in the third quarter, according to preliminary data from the Department of Commerce on Thursday.
Gross domestic product grew by 2.6% on a year-on-year basis in the July to September period, up from declines of 1.6% and 0.6% in the first and second quarters, respectively. Economists had expected the reading to come in at 2.4%.
3. Stocks set to open mixed; strong consumer, energy earnings overnight offset tech weakness
U.S. stock markets are set to open mixed, with tech underperforming after Meta delivered more evidence that the patience sought by Zuckerberg is in short supply with investors these days.
By 6:20 ET (10:20 GMT), Dow Jones futures were up 93 points or 0.3%, while S&P 500 futures were flat, and Nasdaq 100 futures, where most big tech names are concentrated, were down 0.5%, dragged down by the Meta effect.
Disappointing reports and guidance from Big Tech so far this week have raised the stakes for Apple and Amazon (NASDAQ:AMZN), both of which report after the closing bell. Amazon's Cloud hosting business – which has been its cash cow over most of the last decade – will be under the spotlight after Microsoft (NASDAQ:MSFT) forecast a slowdown in growth for its comparable unit, Azure.
Mastercard (NYSE:MA), McDonald's (NYSE:MCD), Merck (NYSE:MRK), and Comcast (NASDAQ:CMCSA) all report early, along with Caterpillar (NYSE:CAT). Intel (NASDAQ:INTC) will try to avoid joining a series of downbeat reports from chipmakers later. Overnight news was mixed, with STMicroelectronics NV (EPA:STM) posting weak numbers, but oil and gas giants Shell (LON:RDSa) and TotalEnergies (EPA:TTEF) reporting another quarter of extremely strong cash flow. Unilever (NYSE:UL), Carlsberg (CSE:CARLb), and AB InBev (EBR:ABI) also succeeded in pushing price increases on to their global customer bases.
4. ECB set to hike into oncoming recession; Egypt devalues sharply
The European Central Bank raised its key interest rates by another 75 basis points and said it plans to hike further in its battle to bring inflation down from a 40-year high.
As such, the key deposit rate - which sets the floor for Eurozone money markets - will rise to 1.50%, while the refinancing rate rises to 2.00% and the marginal lending rate rises to 2.25%.
The euro weakened slightly in response as markets zeroed in on a subtle change in its language that suggested it may only hike once more before stopping its tightening cycle.
The bank also said it will tweak the conditions of some outstanding operations, known as TLTRO III, in order to tighten financial conditions further. The operation had extended large-scale, ultra-cheap loans at the height of the pandemic. Developments since then have made it redundant and arguably added to the pressures that have driven annual Eurozone inflation to 9.9%
5. Oil rises amid signs of G7 price cap plan collapsing
Crude oil prices rose amid reports that the price cap on Russian oil that had been proposed by G7 countries is on the verge of being effectively abandoned.
The practical difficulties of enforcing such a mechanism had always been evident, given the refusal of major importers such as India and China to go along with it. The U.S. appears also to have underestimated the strength of feeling its proposals created among OPEC producers, who saw the move as the thin end of a wedge that would one day hurt their own oil revenues.
By 06:35 ET, U.S. crude futures were up 0.4% at $88.25 a barrel, while Brent was up 0.4% at $94.12 a barrel. An IEA report forecasting a peak in global demand for fossil fuels within a decade had little impact on sentiment.