Strength in technology shares and weakness in financial shares based on third-quarter (3Q) earnings was the theme this week. Google beat expectations in 3Q results with a rise of 46%. Intel reported a 43% rise in 3Q earnings. Bank of America saw 3Q net income fall 32%. JP Morgan also beat expectations, reporting that 3Q net income was $3.4 billion, up from $3.3 billion a year earlier.
Washington Mutual’s shares fell to their lowest level in five years. The company posted a 72% drop in profit and said weakness in the mortgage market will hurt results to the end of the year.
Fed fund futures have gone from pricing in a 32% chance of a Monday rate cut in the US to pricing in a 70% chance. The change is driving down the US greenback and helping commodities surge to new highs.
Economic data was negative this week. The Beige Book showed a weakening of the US economy, with five out of 12 districts recording a slowdown in growth for September and early October. Jobless claims rose and the Philly Fed survey weakened. US housing starts fell in September to their lowest level in more than 14 years.
Stocks in Hong Kong, China & Australia reached record highs this week.
China’s central bank increased the amount of deposits banks must hold in reserve to 13% in an attempt to prevent the economy from overheating. This is the eighth such move this year.
India’s share market saw one of its biggest plunges ever. The fall came on news that regulators want to limit foreign investment in the market. Key indices plunged more than 9%. Trading was stopped for one hour in line with “circuit breaker” rules.
Woodside Petroleum reported that full year production may be up to 10% lower due to the strong Australian dollar, sale of underperforming assets and a gas leak at one of its oil fields.
NZ Casino operator Sky City remained in the spotlight with confirmation that another party had tentatively expressed interest in making a takeover bid for the company.
London brewing company Scottish & Newcastle is in talks with Carlsberg as well as Heineken over a possible joint cash bid.
A profit warning from Ericsson brought a dramatic fall in share price. The mobile phone maker warned that fewer than expected capacity upgrades and lower software sales would hit profits.
UK inflation stayed at 1.8% in September, less than the expected 1.9%.
With third-quarter earnings season on a roll, share movements were driven by earnings reports. In particular US financial firms had a negative week on weaker reported earnings while technology shares outperformed.
Record oil prices will start to weigh on the market more heavily as investors fear that higher energy prices will diminish company profits.
Investors will closely watch oil prices to see whether the record run continues. On October 24 key inflation data will be released in Australia, which will have a major impact on the prospect of an interest rate increase in November.
Head of Fundamental Analysis
HUBB Financial Group