Alphabet lost about $500bn of market value on Thursday after results that fell short of forecasts in advertising. Amazon's investment spending ran ahead of its cash generation over the past year, and Meta priced about $37.5bn of new equity. Central banks gave little sign of a broad easing cycle. The Fed, the ECB and the Bank of Japan held, the Fed with two votes for a hike, and the Bank of Canada raised rates. US growth ran at a 3.4% annual rate in the third quarter. Here is what ten firms made of the week, and one piece we think deserves more readers.
Alphabet's revenue grew 25% to $127.6bn in the third quarter, and search and other revenue grew 12%. Chief business officer Philipp Schindler said AI Mode, which answers questions conversationally, was eating into revenue from ads beside traditional search results, according to the BBC. He also said he felt "very good about our trajectory". Investors were less sure: the shares fell more than 12% on Thursday, the BBC reported.
Amazon's figures need reading in two parts. Operating cash flow rose 29% to $168.3bn over the past twelve months. Purchases of property and equipment rose faster, leaving free cash flow at an outflow of $42.4bn, and Amazon still expects about $220bn of cash capital spending this year. Microsoft grew revenue 19%, with Azure up 48%.
Meta went to the equity market. On Monday it priced $25bn of shares under forward sale agreements, which bring in no cash until they settle, by November 2027 at the latest, and about $12.5bn of mandatory convertible preferred. A further at-the-market programme of about $60bn is planned but not yet running.
Rothschild & Co's Victor Balfour had argued, before any of these results, that the stress sits in the leveraged tail. Neocloud companies have roughly halved since their June highs, and CoreWeave carries around eight turns of debt. The hyperscalers are different, in his view: strong operating cash flows and balance sheets, despite rising debt issuance, are the backstop if financing worries spread. Amazon's numbers fit both halves of that debate, with cash generation rising and investment absorbing all of it and more.
The Fed kept its target range at 3.75% to 4.00% on Wednesday by a 10-2 vote. Lisa Cook and Beth Hammack wanted a 25bp hike. Western Asset calls it "a hawkish hold" and expects another rise in December. It also notes Chair Warsh's remark that financial conditions are tighter but that he is "unwilling and unable to call them tight". Even so, Western Asset thinks rates need not rise much beyond the path already priced, which it says leaves US fixed income well placed.
TCW's Jamie Patton heard something softer in the press conference. Asked whether policy might already be appropriate, Warsh said there was no "firm conclusion". He did not push back on the market's dovish reading. Front-end Treasuries rallied while the long end cheapened.
Energy prices sit behind several of the week's decisions. Brent settled at $114.88 on Thursday, Reuters reported, as hopes of US-Iran peace talks offset worries about Middle East supply, including Houthi attacks on Saudi targets and mine incidents near the Strait of Hormuz. The Bank of Canada raised its overnight rate by 25bp to 2.5%, its first hike in over three years. CI Global Asset Management's Neil Shankar says the fear of energy prices spilling into wider inflation drove the decision, and expects another hike, delivered cautiously.
Nuveen's fixed income team, writing on Monday before the Fed met, made the same link: its call for one more Fed hike and then a hold through 2027 depends heavily on how the energy shock passes through to core inflation.
Read CI GAM's note · Read Nuveen's weekly*
The ECB held on Thursday, with the deposit rate at 2.50%. The Bank of Japan held at around 1.25% on Friday, with one member, Hajime Takata, voting for a rise.
The US data gave both camps something. Third-quarter GDP grew at a 3.4% annual rate, and core PCE prices rose at a 2.5% annualised pace over the quarter, down from 3.3%. The monthly figures were hotter: in September alone, headline PCE prices rose 0.5% and core 0.3%, putting annual inflation at 3.6% and 3.1%. Employment costs rose 3.4% over the year to September, against 3.5% a year earlier.
A J.P. Morgan Wealth Management article by Sergei Klebnikov, published the day before the GDP figures, explains why the AI boom adds less to growth than its size suggests, drawing on Joe Seydl, senior markets economist at J.P. Morgan Private Bank. Investment in computers and peripherals has risen from about $150bn to about $365bn a year since mid-2023, but net imports of the same goods have risen almost as much. "Almost every extra dollar spent on computer hardware (including the chips inside it) is going abroad," Seydl says. AI is also crowding out more rate-sensitive investment, so "the boom is changing what U.S. growth is made of more than it is speeding it up."
*Western Asset's site states that it is for US residents only. Nuveen's page is directed only to UK-resident professional clients and is not addressed to US persons.
Chancellor John Healey's first Budget left £15bn of headroom against the stability rule in 2029-30. For Aviva Investors' chief UK economist, Vasileios Gkionakis, it was "designed to calm rather than excite". Ten-year gilt yields fell 2bp, and the Debt Management Office's issuance mix cuts the supply of long-dated gilts. The cost is deferral: the OBR's assumptions imply real cuts of 2.6% a year to unprotected departments late in the forecast. Markets price four Bank of England hikes by next July. Gkionakis expects fewer, given a subdued economy, and sees room for gilts to outperform other government bonds until next year's spending review.
Read Aviva Investors' reaction*
Rothschild & Co's Kevin Gardiner sees little for portfolios in it. The net fiscal impulse barely exceeds a quarter of 1% of GDP in any single year, and sterling, gilts and most UK stocks hardly moved on the day. Gardiner's own reading is that there never was a fiscal "black hole". He says the OBR shares his view that the accounts are not especially precarious, pointing to net debt peaking at 97% of GDP in 2028/9.
Read Rothschild & Co's first impressions
*Aviva Investors' site states that its content is not intended for distribution in the United States or to US persons.
In a note published on 27 October, two days before the ECB met, Cambridge Associates' Max English concludes that France's troubles do not signal another euro area debt crisis. France's 10-year spread over Germany recently passed 170bp for the first time since 2011, and roughly a quarter of French debt matures by 2030. Spanish and Italian spreads have widened too, but by less: over four months, France's has moved four times as much as Spain's and nearly twice as much as Italy's.
Stronger banks and the ECB's Transmission Protection Instrument make a wider crisis unlikely, English argues, though no backstop fixes France's own fiscal problem. Cambridge Associates keeps its overweight to unhedged non-US government bonds over US equivalents. The currency matters to that position: it reflects the firm's view that the dollar is expensive and will weaken over the medium term, which an unhedged holding is designed to capture.
Read Cambridge Associates' analysis
Brazilian bonds sold off at Monday's open, the day after Lula won Sunday's runoff. Columbia Threadneedle's weekly In Credit, dated that day, puts the move at 24bp, taking the 10-year dollar spread over Treasuries to 152bp. That spread had narrowed by about 80bp from around 200bp between April and early October as investors positioned for a Bolsonaro win and fiscal restraint. Columbia Threadneedle reads the reversal as a lesson in how hard markets react when the expected result does not arrive.
Read Columbia Threadneedle's In Credit*
*Columbia Threadneedle's site is aimed at institutional investors in the UK and is not intended for direct use by any other type of investor.
S&P 500 options price Wednesday 4 November, the day after the vote, at 1.2 times a normal day's volatility, according to Man Group's Adam Keogh. That is roughly half the premium a presidential election draws and in line with past midterms. Polymarket had a Democratic sweep at 66% when he wrote on 27 October. Man notes that the same market gave Lula 16.5% the day before he won, and says it "can't afford to discount any outcome". Keogh's concern is with risks the options may be underplaying: a count that takes days or weeks, or, less likely, unrest that markets could find harder to absorb than in January 2021.
MarketVector's Martin Leinweber tests whether the 1970s are a template for gold now, using prices to 23 October. The 26.6% fall from January's peak to the July low is a normal 1970s-sized correction. What stands out is that the drawdown is still unresolved nine months after the peak, when three of the four 1970s corrections were over within about seven. He is clear that the comparison rests on few cases: only four earlier drawdowns were still open at nine months, and one of them, 2011 to 2015, is an outlier.
The more practical point concerns miners. In the 1970s they were a weak proxy for bullion; today they move 1.5 to 2.2 times as much. Leinweber is watching the July low of about $3,978 on a closing basis. A close below it would, on his reading, favour a longer, 1974-style stair-step decline.
Market prices are Thursday 29 October closes; data and research to Friday 30 October.
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