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Big tech beat revenue estimates backed by cloud growth

US tech giants Microsoft and Alphabet presented solid revenue figures on Wednesday in a sign of what may be a positive quarter for the tech industry. Investors were nevertheless focused primarily on the US Federal Reserve (Fed), which is widely expected to raise next interest rates by another 25 basis points on Wednesday.

Shane Strowmatt, LGT
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After the US market close, heavyweights Alphabet and Microsoft kicked off the earnings season for big tech companies with both firms beating analyst expectations for revenue. Google parent company Alphabet’s second-quarter revenue rose 7% when compared with the same period a year earlier to 74.6 billion US dollars while cloud revenue increased by 28%. Alphabet shares made solid gains in post-market trading. Microsoft shares, however, suffered in after-hour trading, despite the company beating market expectations with revenue of 56.19 billion US dollars. Traders were mostly concerned about the company’s weaker-than-expected guidance. Investors will keep their eyes peeled for any signals about the effectiveness of recent cost-cutting measures in the industry as well as news on artificial intelligence projects as the second-quarter earnings season continues. Social media giant Meta is next to release its second-quarter results late on Wednesday.

Investors were also digesting US consumer confidence data released Tuesday, which reached its highest level in two years in July. The Conference Board’s consumer confidence index increased to 117.0, jumping from 110.1 in June. Importantly, optimism increased among all age groups. The Fed will consider the consumer confidence data alongside inflation and labour market data, among others, when making its monetary policy decision due to be announced later Wednesday. Investors expect the Fed to raise interest rates by another 25 basis points to a target range of 5.25% to 5.5%.

In New York on Tuesday, stocks made gains ahead of the Fed decision. The Dow Jones Industrial reached its highest level since the beginning of February 2022. At the close of trading, however, only an increase of 0.08% remained for the leading index, which finished at 35,438.07 points. The broader S&P 500 climbed as high as last in April 2022 and closed with a gain of 0.28% at 4567.46 points. The tech-heavy Nasdaq-100 , which had slightly lagged the standard stocks the previous day, ended up 0.73% at 15,561.42 points.

In Asia, stock markets were trading mostly lower on Wednesday. In Tokyo, the Nikkei 225 was trading down 0.1% and in South Korea, the Kospi lost 1.7%. In Australia, the S&P/ASX 200 bucked the trend, trading up 0.8% after the country announced its inflation slowed year-on-year last quarter to 6% from 7% in the first quarter. Hong Kong's Hang Seng Index lost 0.8%, while the Shanghai Composite was trading down 0.5%.

A day after the Fed decision, the European Central Bank is also expected to increase rates by 0.25%. However, the macroeconomic background for the decision looks different than in the US, with weaker economic data coming out of the continent. Germany’s ifo Business Climate Index fell for a third month in a row on Tuesday. Sentiment among companies in Europe’s largest economy weakened further with the index falling to 87.3 points in July. Expectations for the future also dropped.

Corporate news in focus: Second-quarter and half-year earnings figures from Deutsche Bank, Puma, Porsche AG, British American Tobacco, GlaxoSmithKline, Reckitt Benckiser, Stellantis, Rio Tinto, Coca-Cola, Boeing, Airbus, Meta.

Economic data in focus: Fed interest rate decision (20:00 CET).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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