Marketmind: Amazon and goldilocks ride to the rescue

A look at the day ahead in U.S. and global markets from Mike Dolan

At least one of the so-called “Magnificent 7” of top U.S. megacaps was able to ride to the rescue.

After a torrid week for markets, news of the “not too hot or cold” combination of booming U.S. growth and ebbing inflation in the September quarter was followed by impressive results from Amazon (NASDAQ:) after the bell on Thursday – both reports underlining the strength of the U.S. consumer.

Unlike the reaction to similarly decent results from some of its Big Tech peers this week, shares in the online retail giant Amazon climbed 5% after hours. The company said its cloud growth had stabilised and fourth-quarter guidance met forecasts.

And both Nasdaq and futures were set to bounce into the weekend later after the cash markets closed at their lowest since May.

The relief is welcome. As an October to forget comes to a close on Monday, the S&P500 is set to clock its third straight month of losses for the first time since the pandemic hit – only the second such monthly losing streak in seven years.

The biggest driver of that retreat has been spiralling long-term borrowing costs.

Confirmation that U.S. GDP growth more than doubled between through the third quarter to hit two-year highs of 4.9% shows partly why the Treasury market has been running scared for weeks – fearful the sheer strength of the expansion would prevent the Federal Reserve cutting rates for up to a year at least.

With nominal U.S. growth running at close to 8%, depending on which inflation gauge you use, the heat is impressive. Nominal U.S. growth was more than twice that of China’s during the quarter.

But with near 5% 10-year Treasury yields at least partly priced for that, the bond markets on Thursday took their cue from ebbing core PCE inflation readings in the details of the GDP report – showing a slowdown to a lower than expected 2.4% last month. And even the racy headline GDP growth rate was below many assumptions of a 5%-plus print.

The upshot was a 15 basis point peak-to-trough daily retreat of the 10-year yield – which has stabilised about 4.85% overnight ahead of the September monthly PCE reading later on Friday and next week’s Fed policy meeting.

That bond relief has perhaps flattered the overnight stocks bounce – although on aggregate the earnings season is pretty decent too. More than 80% of companies have beaten so far and S&P500 companies are on course for annual profit growth of 2.6% for Q3 and pencilling in some 12% earnings expansion for 2024.

Big Oil replaces Big Tech at the top of Friday’s corporate diary, with recently acquisitive Exxon Mobil (NYSE:) and Chevron (NYSE:) due to report. America’s most valuable company, Apple (NASDAQ:), is out next week.

Elsewhere, global stocks captured by MSCI’s all-country index also bounced from their lowest level since March.

Battered Chinese stocks crept higher for a fourth session after data showed profits at industrial firms there extended gains in September, while policy measures aimed a stabilising the ailing economy helped investor sentiment.

Geopolitical concerns eased a touch after China’s top diplomat Wang Yi said on Thursday the United States and China need “in-depth” and “comprehensive” dialogue to reduce misunderstandings and stabilize bilateral relations.

But war in the Middle East will likely keep markets wary of weekend developments in the region through Friday – with tensions moving to U.S. engagement in Syria overnight.

prices were marginally higher and the dollar backed off the week’s highs, slipping back below the 150 yen it breached on Thursday, even though no Bank of Japan intervention emerged as many has feared.

In Europe, the European Central Bank held the line on interest rates on Thursday but left its balance sheet runoff plans unchanged – a crumb of comfort for those expecting a faster unwind of its bond holdings.

European share indexes were muted on Friday, with France’s blue-chip index lagging peers after a dour forecast from drugmaker Sanofi (NASDAQ:) sent its shares down 15%.

Britain’s NatWest shed more than 10% on a profit outlook downgrade and news the Financial Conduct Authority is probing the lender’s handling of the accounts of the former Brexit party leader.

Key developments that should provide more direction to U.S. markets later on Friday:

* U.S. Sept personal income/consumption and PCE inflation gauge, Dallas Sept Fed PCE estimate, final Oct. University of Michigan consumer survey reading

* U.S. corporate earnings: Exxon Mobil, Chevron, Abbvie, Colgate-Palmolive (NYSE:), TRowe Price, Aon (NYSE:), Xcel Energy (NASDAQ:), Stanley Black & Decker (NYSE:), CBRE, LyondellBasell, Charter Communications (NASDAQ:), Phillips 66 (NYSE:)

* European Central Bank President Christine Lagarde attend European Union Summit in Brussels

(By Mike Dolan, editing by Jane Merriman [email protected]. Twitter: @reutersMikeD)