Rate Cut Uncertainty Pushes US Dollar to 3-Month High
Wall Street recorded solid gains in October, with the S&P 500, Dow Jones and Nasdaq increasing 2.3%, 2.5% and 4.7%, respectively over the month. On Monday, the S&P 500 and the Nasdaq both rose 0.17% and 0.46%, respectively, whilst the Dow dropped 0.48%.
December Rate Cut Expectations Drop
Before the Fed announced its decision to cut interest rates by 25 basis points last week, markets had widely anticipated that the Fed would also cut rates in December.
However, at a subsequent press conference discussing October’s decision, Fed Chair Jerome Powell cast significant doubt on a December cut.
He noted that the rate-setting committee had “strongly differing views about how to proceed in December”, and went on to say that “a further reduction in the policy rate at the December meeting is not a foregone conclusion – far from it”.
Consequently, expectations regarding a further cut at the Fed’s final meeting of the year have dropped. According to the CME FedWatch tool, markets are currently pricing in a 67% chance of a quarter-point cut next month. Last week, this figure had been higher than 90%.
As stocks wavered on decreased expectations, the US dollar rallied, lifting it to multi-month highs against the euro and the yen.
The US Dollar Index – which measures the greenback against a basket of foreign currencies – has climbed 1.2% to a three month high since Wednesday’s interest rate decision.
OpenAI-Amazon Deal
On Monday, OpenAI announced a multi-year, $38 billion deal to use Amazon infrastructure for running its AI models.
The ChatGPT maker will be able to use existing Amazon Web Services (AWS) data centres immediately, making use of hundreds of thousands of Nvidia chips. AWS will also deploy additional capacity for OpenAI.
This announcement is the latest in a string of big money deals which OpenAI has struck in recent months with companies including Nvidia, AMD, Broadcom and Oracle. Under these recent deals, OpenAI has committed to spending around $1.4 trillion.
Amazon shares popped 4% on the news, ending Monday's session at a record high. The tech giant has gained more than 10% over the last three sessions.
Earnings Watch
As of Friday, more than 300 companies in the S&P 500 have reported results for the third quarter. According to FactSet, 83% of these companies have reported a positive EPS surprise and 79% have reported a positive revenue surprise.
Last week saw a number of highly anticipated earnings reports, some of which we have summarised below.
- Microsoft: Microsoft reported earnings which beat expectations, with its Azure cloud business recording impressive revenue growth of 40%. Microsoft’s quarterly revenue rose 18% to $77.67 billion vs. an expected $75.33 billion. Meanwhile, EPS rose 23% to $4.13 vs. an expected $3.67.
- Alphabet: Alphabet reported record quarterly revenue in the third quarter, as the Google parent beat expectations on the top and bottom lines. Quarterly revenue rose 16% to $102.35 billion vs. $99.85 billion expected. EPS rose 35% to $2.87 vs. an expected $2.27.
- Meta Platforms: In the third quarter, Meta reported a 26% increase in revenue to $51.24 billion vs. $49.41 billion. Adjusted EPS came in at $7.25, beating expectations of $6.69. However, it’s worth noting that the adjusted figure does not account for a one-off tax charge of $15.93 billion which was reported.
- Apple: The iPhone maker beat analyst expectations in its quarterly results, reporting quarterly revenue of $102.47 billion vs. $102.24 billion expected. Its EPS came in at $1.85 vs. $1.77 expected.
- Amazon: Amazon shares soared in after-hours trading on Thursday after the company posted a third quarter earnings beat. Quarterly revenue rose 13% to $180.17 billion vs. $177.8 billion expected. EPS was reported 36% higher at $1.95 vs. $1.57 expected.
What to Look Out for This Week
On Wednesday, the Trump administration heads to the US Supreme Court to defend against the contention that most of its tariffs are illegal. However, it could be months before a final decision on the matter is reached by the court.
The current US government shutdown is on course to become the longest ever. As things stand, it is only hours shy of the previous record of 35 days which, incidentally, took place during President Trump’s first term.
The ongoing shutdown means that most US economic data releases are still suspended. However, this week, the US ADP Nonfarm Employment Report, which measures monthly changes in US private sector jobs, is due to be released.
Here are some of the important events to watch out for this week:
- Tuesday
- Uber Earnings
- Wednesday
- ADP Nonfarm Employment Report (October)
- McDonald's Earnings
- Arm Earnings
- Thursday
- Bank of England Interest Rate Decision
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