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00:00:00: The Federal Reserve posed but kept December tightening firmly on the table in yesterday's decision as energy inflation remains a concern, they said.

00:00:09: Then Microsoft and Google delivered song cloud growth after the bell.

00:00:14: yet diverging cash flow performances at both companies triggered sharply different market reaction.

00:00:22: The attention now turns to Amazon's results due After the Bell today and ECB decision just a few hours before that, So welcome to Swissco's daily market talk.

00:00:39: It is Thursday, the twenty-ninth of September.

00:00:41: I'm Ipeko Skardishkea.

00:00:43: Today we will go through the central bank decisions and technology earnings.

00:00:48: Try to understand where the appetite is But before you do as always please keep in mind that opinions are my own And this not financial advice.

00:01:05: So the Federal Reserve maintain its interest rates unchanged at yesterday's decision, as widely expected by everyone I guess ahead of next week's midterm elections in the United States.

00:01:15: With two members favouring a twenty-five basis point hype.

00:01:19: however among them is now famous Lizard Cook that US President wants out!

00:01:26: The Fed pointed out strong growth yesterday, resilient domestic spending, robust investment thanks to the AI build-out and a broadly stable unemployment rate in the United States giving it room to keep fighting inflation.

00:01:41: Energy inflation remains an immediate concern for the Fed.

00:01:45: Kevin Walsh warned that rising energy and related prices must be prevented from spreading across the economy.

00:01:52: As such, there was no rate hike yesterday but a December rate hike remains well alive without commitment however.

00:01:59: So in summary the Fed delivered breathing space with little reassurance that bargain costs have peaked half ever so.

00:02:06: activity on funds futures gives around eighty percent chance for twenty five basis point hike.

00:02:13: But the US two-year yield is yesterday, after a meeting and decision to below FOUR POINTS SEVENTY PERCENT.

00:02:20: And the two ten years spread in the U.S.

00:02:23: bounce built the thirty basis points mark meaning that the way Mark has perceived their rather hawkish announcement from the Fed yesterday will quite an good way!

00:02:33: Major US indices including S&P five hundred, NASDAQ one hundred and Dow Jones Industrial Index edge higher with technology heavy Nasdaq one hundred leading gains.

00:02:43: Now that futures are leading losses this morning as earnings announcement from Microsoft and Google came in mixed yesterday.

00:02:51: After the bell and after a defense decision, both companies' cloud segments came in strong.

00:02:56: However Microsoft Azure grew forty-eight percent while Google Cloud grew one hundred three percent in third quarter compared to same time last year Both above expectations.

00:03:07: Yet Microsoft gained around three per cent in their after hours trading While Google fell more than ten percent.

00:03:15: Why?

00:03:15: Because investors remain focused on spending and free cash flow from the companies, because both companies more than double their spending in a third quarter of this year.

00:03:25: But Google's free cashflow that had already turned negative last quarter remember due to massive AI spending further deteriorated into negative US dollars in the third quarter which was bigger drop then expected by analysts while Microsofts' Free Cash Flow also fell by around twenty-seven percent.

00:03:46: yet it is still in the positive.

00:03:49: territory.

00:03:49: it still has a cash flow of around eighteen point six billion US dollars and not helping Google's search revenue missed expectations by about two billion us dollars warning that the AI payoff at google is not what investors wanted to see provided amount spanned on AI.

00:04:07: How interesting.

00:04:08: right this time last year, Google have started to diverge positively from Microsoft The excitement around his Gemini model who started to bet that Google was the ultimate AI play.

00:04:23: Today, Microsoft is closing that gap thanks to stronger than expected cash generation and strong Azure growth.

00:04:30: Although part of its spending undershoot reflected delayed data center deliveries.

00:04:35: but it was yesterday's reaction to Google and Microsoft earnings came as another reminder that leadership in the AI race depends not only on having the most exciting technology with that overwhelming the balance sheet.

00:04:53: Elsewhere, Samsung's quarterly revenue more than doubled.

00:04:57: it was also announced this morning while operating profits surged nearly ninefold driven by booming AI chip demand of course.

00:05:04: yet the shares are down by almost full percent.

00:05:07: at the time I'm talking here this morning as they outlooked out a company game appeared less bullish then SK high nexus.

00:05:15: investors must wait until January for its next shareholder return policy and higher component costs also squids the mobile business.

00:05:23: Yet another reminder that record earnings alone are no longer enough when expectations already sky-high.

00:05:30: Moving forward, Amazon is duty announced its own quarterly results today after a closing bell and here in Europe while market sentiment is somehow steadied this morning ahead of the European Central Bank decision due This afternoon in Europe.

00:05:45: The European Central Bank is why they expect it to leave its interest rates unchanged today, but here as well, a pose this week does not mean that another rate hike before the year ends after table!

00:05:56: Because in Europe inflation remains uncomfortably above the two percent policy target.

00:06:01: Energy prices remain elevated due to Middle East and Ukraine wars And the European central bank will want keep its options open.

00:06:09: The thing is, here in Europe, bond markets have already done some of the tightening for the European Central Bank as fiscal and political tensions in France.

00:06:19: And elsewhere in Europe as well at a smaller scale have already fed through financial markets And higher sovereign yields increase borrowing costs across economies, putting pressure on businesses households and governments without the European Central Bank having to lift a finger.

00:06:38: So today's question is how much additional tightening is really needed in Europe?

00:06:43: The answer will depend upon how persistent the rise that we saw in borrowing cost since weeks Roots to be and whether higher energy prices spread into broader inflation through wages, other than energy products' prices.

00:06:57: As such waiting at least until the dust in French streets settles looks like a reasonable option for me.

00:07:03: if despite tighter financial conditions high energy costs feed into wages & services prices the ECV could still hike interest rates later this year or beginning of Next year, if however tighter financial conditions squeeze activity and contain that inflation pass through the need for further action would diminish.

00:07:23: Voila!

00:07:24: But beyond the rate decision today, The ECB President Kristin Lagar's post-decision presser will be more closely watched than usual as everyone wants to know if how and when the European Central Bank could step in If the bond stress in the euro area escalates further because there is a difference between accepting higher yields As part of fight against inflation And tolerating disorderly selling.

00:07:47: that threatens financial stability.

00:07:52: In this respect, France's ten-year yield spread over German bonds has reached levels last seen during the euro sovereign debt crisis peak levels back in two thousand and eleven.

00:08:01: Two thousand twelve also pushing brother Euro area bond spreads higher against the German bonds and letter will raise questions about potential contagion obviously across other euro area countries.

00:08:14: And lasting ECB once is that contagion?

00:08:17: But the language will matter here, because if Lagora highlights concerns about contagion investors could be reassured by European Central Bank's willingness to step in.

00:08:27: If she chooses to describe the sell-off as a reflection of fiscal problems – which is the sad truth!

00:08:33: She would put the ball back into court.

00:08:36: governments who on their turn are pretty much stuck between their financial constraints and political unhappiness in the streets.

00:08:43: So it's now going to be an easy decision, today's post-ECB decision.

00:08:48: bond action could actually help determine The euro, it coaches in a supportive tone from the European Central Bank could pool yields lower and support equities.

00:09:03: It can also support the Euro if sovereign spreads narrow And concerns about fragmentation ease although softer rate expectations could offset part of that benefit.

00:09:12: A hawkish and firm tone on the other hand should push yields higher and weigh on equity valuations while initially supporting Europe through higher-rate expectations.

00:09:22: But note this!

00:09:25: the European Central Bank meeting would not be higher yields, but a further widening of sovereign spreads.

00:09:31: If investors conclude that the European central bank will keep policy restrictive while offering little reassurance against escalating bond stress, the combination could weigh on equities and strengthen the euro-bearers case for a move towards one ten psychological mark against the US dollar.

00:09:49: So this is all for today!

00:09:51: I'm Ipeko Skardyshkoja And thank you for joining me.

00:09:53: Thank you to all your beautiful and supportive comments.

00:09:57: This episode of Market Talk has been helpful and it's been insightful to you, so please do not hesitate to leave your comments.

00:10:06: Your reactions and your questions below as usual!

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00:10:26: So I will meet again tomorrow and until then, good day trading.