Fed & Big Tech in focus

00:00:00: AI appetite is back, though the bills keep growing.

00:00:04: Anthropics IPO filing earlier this week, strong demand for Meta's share sale and SK Highness beating expectations have all revived enthusiasm among investors ahead of the Fed decision and earnings from Microsoft and we will do later today after the US closing bell!

00:00:21: But the uncomfortable question of how much investors are willing to pay for their AR dreams continues to linger in the background.

00:00:29: So welcome to Swissco's daily market talk, it is Wednesday, the twenty-eighth October and I'm Ipekos Kardashian.

00:00:37: We will talk about the Fed and technology earnings today but before we do as always please keep in mind that opinions on my own this isn't financial advice.

00:00:55: So the energy boosts following Anthropics IPO filing on Monday gained further momentum despite all concerns regarding massive investment needs for AI infrastructure, endless funding needs and questions about profitability.

00:01:09: But regardless Meta's latest USUSD USD share sale was five times oversubscribed according to news.

00:01:18: so now it has gained one point twenty nine per cent on Tuesday trading session as Philadelphia's Conductor index jumped at three point sixty percent.

00:01:27: Then in Korea, Cosby is up by nearly seven percent this Wednesday at the time I'm talking here mostly thanks to a ten-percent rally and SK high next after reporting better than expected results and the results are really good.

00:01:40: I mean, revenue rose three hundred twenty eight percent.

00:01:42: a year on here operating profit jumped six hundred thirty two percent giving an operated margin of almost eighty per cent.

00:01:49: net profit missed due to currency headwinds then non-operating investment losses with hay.

00:01:55: this time investors chose to jump onboard as yes cheap when you're looking at valuation, and less than four times for its estimated two thousand twenty six earnings.

00:02:06: And less then three times is estimated to thousand twenty seven earnings now elsewhere.

00:02:12: well these are less good.

00:02:13: oil prices remain elevated with US crude consolidating near the hundred and two-and a half dollar per barrel level as brand crude studies build one hundred ten dollars per barrel levels this morning.

00:02:23: The stress across European bond markets, however seems to have studied while the US two-year yield that best captures Fed expectations is up for the fourth consecutive session.

00:02:33: So it is in this environment that the Federal Reserve ends its two-day monetary policy meeting today and Google & Microsoft will be opening their books after the bell.

00:02:42: As I said on Monday, This week we'll probably present plenty of opportunities to either restore confidence or give investors more reasons to question federal reserves' policies The robustness of AI trade And also how much they're willing pay for an AI dream In a broader scheme of things mainly when yields are still attractive.

00:03:02: So let's start with the Fed and drill down to Microsoft & Google Earnings.

00:03:06: The Fed is widely expected to do nothing today, despite the latest inflation figures from US coming in firmer than expected as no fed head would be willing to hike interest rates just a few days before critical midterm elections.

00:03:20: But the fact that U.S.

00:03:21: inflation remains sticky above a two percent monetary policy target means that possibility of another rate hike in December is well on-the-table.

00:03:31: Activity on Fed Fund's futures currently gives more than an eighty per cent chance for at least twenty five basis points before this year ends.

00:03:40: Of course, this probability could change in the blink Suddenly, for example wars in Iran and Ukraine stop.

00:03:48: And energy prices crash.

00:03:49: but because that looks more like an extreme case scenario today the chances are that the Fed could hike interest rates with we agree no guarantee these interest rate hikes will help bringing inflation down into U.S as price pressures are filled by war-led energy crisis But also massive AI buildout and ample government spending.

00:04:11: For the Fed, a challenge will be to act based on facts actually and justify your direction it takes.

00:04:15: Again even though inflation is not demand boosted if higher energy costs feed through to the broader economy rate hikes could temper part of that pressure.

00:04:25: still The same time the labor market in the US has shown signs of softening In latest reading.

00:04:30: If trend gains momentum then need for further rates from the fed will automatically diminish which would great news for financial markets.

00:04:38: We'll therefore pay close attention.

00:04:40: Federal Reserve Chair Kevin Walsh describes inflation outlook, the labor market and impact of higher energy prices on economy.

00:04:48: There will probably be no forward guidance but we'll look for clues about how concerned the federal reserve is by tighter financial conditions including pressure that higher water costs are putting on AI investment both but also housing through higher mortgages and impacts on broader consumer loans.

00:05:09: up to one trillion US dollar in this holiday season which is a huge number, mind you.

00:05:14: But it's said also that the lower volumes will be accompanied by higher prices.

00:05:19: so A more harkish message from the fact today could push yields on a shorter end of U.S yield curve higher, narrowed the spread between the U. S two and ten-year yield and later would weigh on risk assets especially on technology stocks by reviving recession talk for example.

00:05:43: The two to ten year yield spreads has eased around twenty six basis points in negative reading here is seen as Recession warning remember?

00:05:52: On idea that higher borrowing costs will squeezing the karmic activity enough to send it to the recession zone.

00:06:00: more discreetly here.

00:06:02: Given that inflation is not demand-driven, the stock inflation would be a more plausible scenario if the jobs market was weakening.

00:06:09: A more balanced term from the Fed on the other hand could offer some relief to financial markets and risk assets.

00:06:16: but even with the Fed holds today investors will still want know what it'd take for policymakers raise interest rates again or whether one more rate hike Overall.

00:06:26: in summary, if yields rise after the Fed announcement today equities will remain under pressure.

00:06:32: If yields ease we could see some relief but at will be revealing in their latest quarterly reports due after the bell.

00:06:48: Here, what we want to know is how strongly they're cloud businesses grew?

00:06:52: To understand the strength of AI demand and How much more are you planning on expanding that growth?

00:06:59: Now for the growth, part expectations.

00:07:01: For the cloud businesses of Google and Microsoft are strong.

00:07:05: analysts expect Microsoft Azure Cloud business to have grown by around forty eight percent year over a year while Google cloud is expected to how grown by about ninety five percent supported by demand for AI services.

00:07:20: Microsoft is also expected to disclose Azure revenue in US dollar terms for the very first time in an effort to give investors a clearer picture of the size.

00:07:46: Last week, remember the thinking is that growth and spending do no longer go without each other.

00:07:52: Beating earnings expectations are not enough to convince investors to stay on board!

00:07:57: Making sure that costs remain reasonable & NOT to play who will be paying for them as Meta gives a feeling WILL BE IMPORTANT.

00:08:04: Zuckerberg himself already reckoned that Meta could end up spending hundreds of billions US dollars in an AI race.

00:08:11: But the risk of falling behind is greater!

00:08:13: And if other big technology companies do the same, well there's a risk that trillions of US dollars would be thrown by the window.

00:08:21: According to Gartner more than three and half trillion U.S.

00:08:24: dollar of AI infrastructure spending could be at risk of impairment while two thousand thirty provided that company will continue their current pace.

00:08:35: So there's no surprise that investors want reassurance their growth could keep pace with costs, especially when attractive bond yields offer an alternative to paying a high price for profits.

00:08:45: That may take years materialized or not materialize.

00:08:49: if you miss the U S ten year inflation protected bond yields around two point sixty six percent today as the highest it has been since two thousand eight.

00:08:58: so I believe here and let the Fed and big technologies say what they have Tomorrow, but this is all for today.

00:09:07: I'm Ipeko Skardishkaya and thank you for joining me And Thank You For All Your Beautiful And Supportive Comments!

00:09:13: I hope This Episode Of Market Talk Has Been Helpful And It Has Been Insightful To You.

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00:09:40: So I will meet again tomorrow, until then good day

00:09:59: trading!