Big Tech outlooks drag down US markets

Good morning. Here's what happened overnight and what you need to know today.

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1.

Mega miss: US stocks tumbled as earnings beats from tech giants Microsoft and Meta weren’t enough to please investors, as disappointing outlooks drove concerns in a market already near record highs. Uber, likewise, posted better than expected Q3 revenue, but gross bookings missed at USD41.0 billion, missing estimates of USD41.24 billion and sending shares as much as 12% lower. Microsoft’s shares fell 4.8% following its slower cloud growth forecasts due to data centre constraints, and Meta’s AI expenditures were a worry for investors. The S&P 500 was trading 1.5% lower and the Nasdaq was down 2.61% in the late afternoon session. NBC owner Comcast reported higher quarterly sales and said it was considering a potential spin-off of its cable networks. Meanwhile, Huawei Technologies on Thursday posted a 13.7% drop in nine-month profit. (Capital Brief)(Bloomberg)(WSJ)(Reuters)

2.

China retaliates: Skydio, the largest US drone maker and a supplier to Ukraine, is facing a supply chain crisis after Chinese sanctions cut off battery supplies from its sole Chinese provider, The Financial Times reported. In an email to customers cited by the FT, CEO Adam Bry criticised China’s move as an attempt to “eliminate the leading American drone company and deepen the world’s dependence on Chinese drone suppliers.” The sanctions, reportedly enacted in retaliation for US approval of the sale of attack drones to Taiwan, also affect other American firms, including military shipbuilder Huntington Ingalls Industries and military drone maker Edge Autonomy Operations. China allegedly pressured Skydio’s battery supplier, Dongguan Poweramp, a subsidiary of Japan’s TDK, to cease ties, the FT said. Skydio has approached US and Taiwanese officials for assistance in securing alternative supply sources. (FT)(Forbes)

3.

Inflation trends: The Federal Reserve preferred US inflation gauge ticked higher on a monthly basis in September but kept its stable to downward trend in an annual basis, bolstering the case for a slower pace of interest rate cuts by the central bank. The US personal consumption expenditures (PCE) price index rose 2.1% annually in September, with a monthly gain of 0.2%, according to the Bureau of Economic Analysis. That matched forecasts and follows 2.3% annual and 0.1% monthly growth in August. The central bank has recently focused on supporting the job market to prevent high unemployment as the economy cools. But with inflation edging up amid solid growth and spending, economists warn the Fed may slow or even pause rate cuts to avoid a re-acceleration of inflation. The core PCE index, which excludes food and energy, rose by a steady 2.7% annually – the same rate as in August – and 0.3% monthly – up from 0.2% monthly growth in August – signalling persistent price pressures. (Capital Brief)(Bureau of Economic Analysis)(US Bureau of Labour Statistics)(Bloomberg)(Reuters)

4.

Citi pay: A group of 10 former Citigroup managing directors sent a letter to Citigroup’s board, urging the clawback of “unwarranted” bonuses awarded to over 250 managers, citing slow progress and heavy spending amid the company’s restructuring plan led by CEO Jane Fraser, Bloomberg reported. The missive also encourages the board to slash spending on outside consultants by at least half, Bloomberg said citing the letter. The group criticises management’s operation for reflecting “internal loyalties to Fraser” instead of independent execution, referencing regulatory concerns about the pace of improvements. Citigroup contested the claims, describing the letter as containing “factual inaccuracies” but recognised the urgency to make progress. Citigroup’s stock has risen 25% this year but lags behind peers and trades below book value. (Bloomberg)

5.

Jobless drop: Initial US jobless claims fell by 12,000 to a seasonally adjusted 216,000 for the week ending 26 October, the lowest level of applications for US employment benefits since May and below the average forecast by economists polled by Bloomberg, who had predicted 230,000 claims. The drop came as the effects of hurricanes Helene and Milton diminished, with the largest decreases seen in North Carolina and Florida, both of which were hit hard by the storms. People receiving benefits after an initial week of aid, a proxy for hiring, dropped to 1.86 million in the previous week. The weekly data comes ahead of the key Labor Department October's employment report due on Friday. FactSet consensus estimates predict a net gain of 117,500 jobs during the month, a sharp drop-off from the surprisingly strong preliminary estimate of 254,000 jobs added in September. The unemployment rate is expected to hold steady at 4.1%. (Capital Brief)(US Department of Labor)(Reuters)(Bloomberg)

6.

AI duel: OpenAI and Google stepped up AI efforts on Thursday (Friday AEDT) with OpenAI launching the integration of web search into ChatGPT and Google enhancing Maps with context-aware AI queries via Gemini. OpenAI’s new search function now gives fast, linked answers from third-party sources. Content partnerships include publishers like Condé Nast and Le Monde. Meanwhile, Google added AI chatbot Gemini to Google Maps, enhancing searches with context-aware results for activities. Google also unveiled AI features for Google Earth and the navigation app Waze, including chatbots to help developers and urban planners with faster analysis of map and geographic data, along with a voice-enabled feature in Waze for drivers to report road incidents. (Reuters)(Reuters)

7.

Rate puzzle: Eurozone inflation increased to 2% in October, up from September’s 1.7% and surpassing estimates of 1.9%, Eurostat data showed. Food prices surged 2.9%, while energy costs decreased at a slower pace of -4.6%. Core inflation, excluding volatile items, remained steady at 2.7%, missing expectations of a slight drop. The ECB has cut rates three times this year amid cooling inflation and slower economic growth in the eurozone. The fresh data encouraged some caution in future rate cuts by the central bank, even as data showed unemployment in the single currency area held steady at 6.3% in September. "While usually without much significance, today’s unemployment reading, combined with stronger growth and hotter inflation, will provide yet another argument for the hawks in their battle about the pace of cuts," said Kamil Kovar, an economist at Moody’s Analytics.

8.

CEO push: Shares in connected fitness company Peloton surged as much as 34% to USD8.92 after it named Ford executive Peter Stern as CEO and raised its fiscal 2025 profit guidance. First-quarter revenue beat expectations at USD586 million, though it fell 2% year-over-year, and reported earnings were close to breakeven. Stern’s appointment is effective 1 January and comes as the company is targeting a return to growth. The key holiday quarter forecast showed a revenue expectation of USD640-USD660 million, slightly under consensus expectations of USD671.4 million, according to StreetAccount. The gains stem from a previously disclosed cost-cutting strategy and Peloton’s focus on enhancing the profitability of its hardware segment, which had historically operated at a loss. For the full year, Peloton expects revenue between USD2.4 billion and USD2.5 billion, down 9% from last year, with a focus on continued profitability through increased free cash flow and reduced expenses. Subscriber numbers are also projected to fall short of analysts’ targets. (CNBC)(Bloomberg)