Financial market research and analysis

Wall Street crept higher overnight as investors looked ahead to corporate results from Alphabet after the closing bell. Following Facebook’s better than expected Q4 results, optimism was running high for another set of strong figures from Alphabet.

Google parent Alphabet was the last of the Faangs to report. Whilst earnings beat Wall Street’s expectations, the firm’s massive shopping spree spooked investors. Alphabet reported Q4 earnings of $12.77, ahead of the $10.85 forecast. Revenue came in 22% higher at $39.28 billion, well ahead of the $31.326 billion expected. So far so good. However, costs were also up an eye watering 26% at $31.07 billion in Q4.

The increase in spending at Alphabet reduces profit margins and comes as the firm moves away from digital advertising towards more costlier businesses such as cloud computing and self-driving cars. When spending growth outpaces revenue growth investors will always get anxious. And that is what we are seeing here. Alphabet share prices dropped 3% after the close. US futures are also pointing to a weaker start to trading this afternoon.

Asian markets were mixed overnight as the week-long public holiday in China is leaving other bourses in the region struggling for direction. Europe is looking firmer heading towards the open as it takes its lead from closing strength on Wall Street and continued caution from the Fed boosting risk appetite.

Fed Supporting Risk Appetite

The Fed’s U-turn on monetary policy was made clear last week after the Fed signalled a pause in its hiking cycle. A statement issued later that Powell had informed Trump and Treasury Secretary Steve Mnuchin that the path of policy will “depend entirely on incoming economic information” has helped reduced fears of political interference. The market once again feels comfortable that the Fed is will sit tight should concerns of global economic weakness impact on the US economy.

Pound Resilient On No Deal Planning

The pound was moving higher in early trade as no deal Brexit planning continues to dominate headlines. Whilst Theresa May is in Brussels talking Brexit in close circles, the BoE and the EU have agreed to keep clearing houses in London in the case of a no deal Brexit. This comes hot on the heels of news that EU goods won’t pass through vigorous checks as they cross UK borders. So far these are steps, albeit small steps, which will help keep the UK economy turning in the case of a no deal.

Pound traders will now look ahead to the UK Service sector pmi. After weakness in the manufacturing and construction pmi’s the prospects for the service sector are pretty dim. Another set of soft data will confirm the feeling that the UK economy is slowing significantly in Q1 and as we head towards Brexit.

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