“Big Tech” continues to smash analysts’ forecasts. Shares in Alphabet – Google’s parent company – Amazon, Microsoft and Twitter all moved sharply higher on Thursday. The S&P 500 technology index has now gained more than 30% this year, thumping the broader benchmark’s 14.4% rise.
Amazon was the biggest winner on so-called Super Thursday, jumping nearly 8% to take its share price above US$1,000 per share in after-hours trading. The online retailer delivered a 34% hike in sales, helping the company turn a profit despite having spent heavily to “disrupt” industries and steal market share. There was good news for Google too, with the company reporting a more-than-respectable 24% rise in sales to US$27.8bn, considerably ahead of expectations. Social media player Twitter surprised the market as it posted some unexpectedly strong results that sent its shares surging 18.5%.
Turning to the US political landscape, the week was dominated by infighting among the Republicans. There was some respite, however, as President Trump’s proposed tax reform was cleared by the House of Representatives. The landmark vote paves the way for lawmakers to begin focusing on the finer details, providing a further boost to markets in the process.
Lower for longer, Mario confirms
Mario Draghi refused to put a definite end date on the European Central Bank’s quantitative easing programme. The Bank’s President announced purchases of government (and some corporate) debt will continue at €60bn a month through to the end of the year, before this figure is halved from January through to September. But Draghi also reiterated that the Bank stands ready to extend or increase asset purchases further if required. The ECB’s decision sent the euro lower, but European shares climbed as markets anticipated access to cheap capital for longer.
Bad week for Barclays
Halloween has come early for Barclays CEO Jes Staley. Shares in the banking giant tumbled more than 7% in Thursday trading, as revenues from its fixed income, currencies and commodities divisions dropped 31%. Haunting figures for Staley, who once said he wouldn’t panic after one bad trading quarter. He’s now had three. The consecutive declines in earnings will make it harder for Staley to win over those investors sceptical of his strategy to build up the investment bank, which has been Barclay’s least profitable division for some time now. Instead, there are calls for capital to be reallocated to consumer banking in the UK, where returns have been dependably higher in recent years.
Elsewhere in the UK, third quarter GDP data came in above analyst expectations at 0.4%, providing a welcome boost to sterling and virtually sealing the deal for an interest rate hike next week. Yields on shorter-dated UK government bonds jumped to their highest level since the Brexit vote in reaction.
China – Xi Jinping tightens grip on power
The 19th Party Congress brought three significant changes at the top of the Chinese Communist Party.
First, Xi was able to fill the Politburo Standing Committee with close allies. Second, “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” was enshrined into the Party constitution. This is of great symbolic importance given Xi is only the second leader, after Mao, to have his name put into the constitution while still in power. Third, Xi has left the door open to staying in power beyond 2022 by not anointing a successor-in-waiting.
The implications of these political developments for the economic outlook are far from clear-cut. On the one hand, Xi’s power may give him the ability to implement the structural reforms that China requires. On the other hand, Xi may not be as interested in market-orientated reforms as the conventional wisdom believes, particularly when it comes to the State Owned Enterprises.
And finally…
As autumn draws on and Hallowe’en approaches, pupils and teachers at a Baltimore high school are regretting a misguided attempt to enter into the spirit of the season. Firefighters and a hazardous materials team were called to Cristo Rey Jesuit High School after several people reported breathing difficulties due to an ungourdly smell. After extensive testing was carried out, the source of the offensive odour was discovered in a third-floor classroom; it was a pumpkin-scented plug-in air freshener. Bit of a turnip for the books, if you ask us.
