Month: January 2024

© Reuters

Investing.com — In pre-market trading on Wednesday, shares of Skyworks Solutions (NASDAQ:SWKS) saw a more than 3% rise following the company’s announcement of Q1 earnings that exceeded consensus estimates.

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The positive outcome is attributed to the stabilization of end markets and an increased demand for the chipmaker’s products, driven by the growing use of 5G technology.

For Q1, Skyworks reported an EPS of $1.97, outperforming the anticipated $1.95 by analysts. The company’s revenue aligned with Wall Street projections, coming in at $1.2 billion.

Moving forward, Skyworks set its revenue expectations for Q2 to range from $1.02B to $1.07B. At the mid-point of this range, the semiconductor solutions provider anticipates non-GAAP diluted EPS of $1.52.

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© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Samuel Indyk and Tom Westbrook

LONDON (Reuters) -The dollar was edging higher on Wednesday and headed for its biggest monthly gain since September and while the yen was set for its sharpest monthly drop in almost a year, as traders waited on a U.S. rates decision to round out January.

The dollar index has gained 2.1% against a basket of major currencies this month as markets dialled back expectations on the speed and scale of U.S. rate cuts in the face of strong economic data and pushback from central bankers.

On the day, the dollar index was up 0.1% to 103.51, just below Monday’s 103.82 which matched last week’s seven-week high.

A sharp slowdown in Australian inflation pushed the Aussie dollar down as much as 0.5% to $0.6560 and rallied bonds as investors pulled forward wagers on interest rate cuts, while a moderation in French inflation added to losses for the euro.

Elsewhere moves were more modest, and the yen made little immediate reaction to a hawkish tilt at the Bank of Japan, while markets waited to hear from the Federal Reserve.

The yen is down almost 4.5% on the dollar this month and headed for its largest monthly drop since February last year as tepid wage data and cooling inflation leave room for the Bank of Japan to take its time raising rates.

However, a summary of its January meeting on Wednesday showed its resolve strengthening and conditions supporting an end to negative rates relatively soon.

The Federal Reserve meanwhile is expected to hold U.S. interest rates steady on Wednesday but flag cuts are coming by dropping language indicating it is weighing further hikes.

Interest rate futures price a roughly 43% chance of a Fed rate cut in March, down from 73% at the start of the year.

“If we get a softer tone from (Federal Reserve Chair Jerome) Powell then I think there’s a risk that the dollar would weaken,” said Dane Cekov, senior macro and FX strategist at Nordea.

Ahead of the Fed, Cekov highlighted the U.S Treasury’s quarterly refunding announcement and the closely-watched employment cost index for evidence of wage growth in the fourth quarter as potentially key for the dollar outlook.

German inflation figures are due on Wednesday after French EU-harmonised inflation earlier moderated to 3.4% in January from 4.1% in December.

A slowdown in Germany would foreshadow the same in Eurozone numbers due on Thursday and reinforce market expectations that European policymakers could start rate cuts earlier than the ECB has signalled.

The euro was last down 0.2% at $1.0829, while sterling was down a similar amount to $1.2680 before the Bank of England’s policy announcement on Thursday.

Expectations of interest rate cuts in China have driven a strong rally in the bond market this month while the yuan has been squeezed by flight from China’s crumbling equity markets.

The Chinese currency held at 7.1771 on Wednesday, down 1% for the month. China’s manufacturing activity in January contracted for a fourth straight month, an official survey showed, suggesting the sprawling sector was struggling for momentum.

© Reuters.

Investing.com — U.S. stock futures are mixed as investors await a major Federal Reserve interest rate decision and potential commentary on future borrowing costs from the central bank. Microsoft (NASDAQ:MSFT) and Google-owner Alphabet (NASDAQ:GOOGL) warn that spending on developing their artificial intelligence capabilities will be higher this year, offsetting a strong set of quarterly earnings from the tech giants. Elsewhere, Elon Musk’s massive Tesla (NASDAQ:TSLA) pay package worth nearly $56 billion is voided by a Delaware judge.

1. Fed decision ahead

The Federal Reserve is widely tipped to keep interest rates steady following the central bank’s latest two-day policy meeting on Wednesday, meaning any comments from officials around the path ahead for interest rates will be in sharp focus.

Borrowing costs currently stand at a range of 5.25% to 5.50%, the highest in more than two decades, after the Fed embarked on an aggressive campaign of rate hikes aimed at cooling elevated U.S. inflation.

Recent data has suggested that this tightening cycle may be having the desired effect. While price growth remains above the Fed’s stated 2% target, it has continued to show signs of easing back down to this mark. Economic activity has also been resilient, a trend most recently evidenced by a stronger-than-projected advance reading of fourth-quarter U.S. gross domestic product last week.

The figures have bolstered hopes that the Fed may be able to defeat inflation without sparking a broader economic meltdown — a scenario known as a “soft landing.”

Policymakers signaled in December that there could be as many as six rate reductions in 2024, fueling anticipation late last year that a twenty five basis point cut could come as early as March. Yet several Fed officials, wary of reigniting upward pressure on inflation, have since poured cold water on these expectations. Commentary today from the Fed — and Chair Jerome Powell in particular — could thus impact how markets see rates evolving in the coming months.

2. Futures mixed

U.S. stock futures were trading on both sides of the flatline, as investors looked ahead to the Fed decision and gauged a fresh slate of major corporate earnings.

By 05:26 ET (10:26 GMT), the Dow futures contract had added 34 points or 0.1%, while S&P 500 futures had dipped by 27 points or 0.5% and Nasdaq 100 futures had shed 224 points or 1.3%.

The Fed could finally “put a pin in the idea” of an imminent rate cut on Wednesday, said Michael Hewson, Chief Market Analysts at CMC Markets (LON:CMCX), in a note. “It would be surprising if the Fed were to signal a cut in rates in March although they might well open the door to one on [the second quarter],” Hewson added.

Elsewhere, shares in Microsoft and Alphabet slipped in premarket trading, with Wall Street fretting over the large costs both of the tech behemoths are set to incur in their push to develop products powered by artificial intelligence (more below). More earnings are due out today, including numbers from embattled planemaker Boeing (NYSE:BA) and drugmaker Novo Nordisk (NYSE:NVO).

In the prior session, the benchmark S&P 500 closed lower by 0.1%, but was still just under its all-time high reached on Monday, while a dip in megacap names like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) dragged down the tech-heavy Nasdaq Composite by 0.8%. The 30-stock Dow Jones Industrial Average gained 0.4%.

3. Microsoft, Alphabet flag AI costs

Microsoft and Google-parent Alphabet have flagged that they expect capital spending will rise this year as they attempt to bolster their position in the intensifying race to harness surging demand for generative AI.

Redmond, Washington-based Microsoft told analysts in a post-earnings call that the need to scale its AI infrastructure would cause expenditures to “increase materially” on a sequential basis in areas like data centers and servers. Chief Financial Officer Amy Hood added that Microsoft, who surpassed Apple has the world’s biggest company earlier this month, is shifting to an “AI-first position.”

Alphabet also said that spending would be “notably larger” in 2024, with the YouTube-parent driving to build out its AI offerings at its key advertising and cloud services units. In particular, Alphabet is targeting the launch of an advanced upgrade to its generative AI chatbot, Bard, later this year.

Finance chief Ruth Porat noted that the group sees “extraordinary” potential for the applications of AI for users, adding that the technology offers “long-term growth opportunities.”

Both firms posted better-than-anticipated profit and revenues in their most recent quarters, although Wall Street’s tepid reaction indicated that doubts remain over whether they can maintain the soaring spending levels needed to deliver generative AI.

“In the larger picture, the trend for this earnings season is clear: the market wants to see who has enough spending power to dominate the innovation war expected to play out as soon as monetary conditions improve,” said Thomas Monteiro, Senior Analyst at Investing.com. “In this case, more than actual [earnings per share], investors want to see improving margins and free cash flows so they can understand that the company will have a shot in the AI arms race.”

4. Judge tosses out Musk’s massive Tesla pay package

A judge in the U.S. state of Delaware has voided tech tycoon’s Elon Musk’s huge $55.8 billion Tesla pay package, saying that it amounted to an “unfathomable sum” that was not fair to shareholders.

The decision, which tosses out the biggest remuneration offering in corporate America, argued that the directors of the electric vehicle giant appeared to be beholden to Musk’s “superstar appeal.” The case related to a lawsuit brought by some Tesla stakeholders who believed that the compensation was excessive.

Should the ruling be upheld, Musk would lose options to more than 303 million Tesla shares, or roughly about 10% of the company and well below his previously stated goal of 25% ownership.

Shares in Tesla slipped in premarket trading on Wednesday.

5. Crude dips after weak Chinese manufacturing data

Oil prices edged lower, as disappointing manufacturing activity data from China, the world’s biggest crude importer, dented sentiment.

By 05:27 ET, the U.S. crude futures traded 1.2% lower at $76.89 per barrel, while the Brent contract dropped 1.1% to $81.59 a barrel.

Official data showed that manufacturing activity in China contracted for a fourth straight month in January, raising further doubts around the strength of the economic recovery of this vital crude market.

That said, the crude benchmarks are still on course for their first monthly gain since September as broadening Middle East conflicts exacerbated supply concerns over this oil-rich region.

Meanwhile, U.S. inventory data from the American Petroleum Institute indicated that crude stockpiles dropped by 2.5 million barrels in the week ended Jan. 26.

© Reuters.

Investing.com — Microsoft (NASDAQ:MSFT) shares inched lower in premarket U.S. trading on Wednesday after the world’s largest company by market value warned that capital spending will rise as it pushes to scale up its artificial intelligence capabilities.

In a call after the release of its second-quarter results, executives from Redmond, Washington-based Microsoft told analysts that the need to scale its AI infrastructure would cause expenditures to “increase materially” on a sequential basis in areas like data centers and servers.

Chief Financial Officer Amy Hood said that Microsoft, whose market capitalization surpassed $3 trillion earlier this month, is shifting to an “AI-first position.”

“[T]he important part [is to] invest toward the thing that’s going to shape the next decade and continue to stay focused on being able to deliver your day-to-day commitments,” Hood said.

Analysts at Deutsche Bank argued in a note to clients that Microsoft’s guidance may indicate some near-term “compression” of free cash flow margin, although they added it should be seen as a “positive signal” for the potential future performance of Microsoft’s AI services.

Microsoft and other tech giants have been pushing to expand the presence of AI in their products in response to a recent surge in demand for the nascent technology. Central to Microsoft’s strategy has been its stake in OpenAI, the research organization behind popular chatbot ChatGPT that has become a focal point of the soaring enthusiasm over AI. Microsoft, which owns 49% of OpenAI, has committed to investing more than $10 billion in the firm.

The OpenAI bet has led investors to keep a closer eye out for possible financial gains in Microsoft’s cloud unit, a key revenue driver that includes the all-important Azure computing platform.

Sales at Azure grew by 30% in the second quarter thanks in large part to solid demand for AI services. According to Chief Executive Officer Satya Nadella, Azure now has 53,000 AI customers, with over one-third added in the past twelve months. Cloud segment revenues subsequently rose by 20% to $25.9 billion, topping analyst predictions of $25.3B.

The group did not disclose any figures for its new Microsoft 365 Copilot, a generative AI assistant built into many of the company’s applications, but Nadella said early signs suggest it is on track to become “standard issue” for many corporate customers.

“Microsoft is firing on all cylinders and AI is clearly driving growth. The results indicated that artificial intelligence products are stimulating sales and already contributing to top and bottom-line growth,” said Jesse Cohen, Senior Analyst at Investing.com, in a note.

Total revenue jumped by 18% in the three months ended on Dec. 31 to $62B, lifting earnings per share to $2.93. Both metrics beat Wall Street estimates.

Yasin Ebrahim contributed to this report.

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