Federal Reserve Interest Rate Decision – 31st January 2018 – 7.00pm GMT
Nobody expects Yellen to drop choice words in her monetary swansong. And the lack of a scheduled press conference generally means no policy changes. That leaves attention on three main points. 1. How worried are policymakers about inflation this time? Two dissenting votes were cast against December’s rate rise on grounds that it was too aggressive after two prior hikes in 2017. Policymakers noted inflation was still far from their 2% target and didn’t expect the pace to quicken soon. 2. The Fed kept its forecast of three hikes for 2018, despite tax cuts, though FOMC members said the cuts would boost consumer spending. That happened, looking at Friday’s GDP data, though economic growth overall missed forecasts. Any sign the Fed may factor in tax cuts further? 3. ‘Dot plot’ forecasts currently project rates at 3.1%, above a “neutral” rate of 2.8%, by 2020. Amid inflation concerns and after economic undershoot in Q4, watch if the dots fall. The battered dollar could react sharply.
Non-farm Payrolls (January) – 2nd February 2018 – 1.30pm GMT
Around 180,000 jobs have been added to the booming U.S. employment market according to average economists’ forecasts, after 148,000 last month. December’s tally missed most expectations, partly due to the lack of a traditional seasonal uplift in retail. January, when hiring tends to pick up, may be more crucial. And the market reaction could be more severe if that trend is not reflected in the data, unlike last time. December’s pick-up in wage growth also needs to be sustained for an overall positive assessment by the market.
Big Tech Results
Facebook Q4 Earnings - 31st January 2018
After stunning top and bottom-line growth in 2017, Facebook’s main problem right now is not profits, but repute. The EU is on the warpath about privacy. Washington is probing whether FB enabled ‘state actors’ to disrupt the 2016 presidential election. Worries over potential sanctions or new regulation almost pushed the stock into the red for the year earlier this month. But Facebook has made some headway, sounding contrite and vowing to revamp access to its newsfeed. Even so, CEO Zuckerberg’s statement that fixing security “will significantly impact profitability going forward” could echo. Advertising revenue looks set to vault 43% to $12.31bn. As usual that would be the lion share of total revenue forecast at $12.56bn. Wall Street sees EPS at $1.94.
Microsoft Q2 Earnings - 31st January 2018
Microsoft would have enjoyed a healthy environment for software spending in the closing months of 2018, looking at consumer and business surveys. On the B2B side, execution on its cloud strategy is expected to turn out well, as Azure market penetration increases and businesses continue a trend of seeking alternatives to Amazon Web Services. Microsoft is also expected to come out on the winning side of new changes to accounting standards that force companies to re-evaluate when to recognise revenue. Less positively, a hefty $128bn overseas cash pile means Microsoft won’t escape a large one-off charge.
Amazon Q4 Earnings - 1st February 2018
The latest buzz about the increasingly ubiquitous e-commerce-to-cloud giant is its incursion into advertising. Forecasts of a revenue lift that could touch $20bn have been bandied about. That won’t be anywhere in sight in the upcoming quarter report, though any company commentary should be scrutinised. For existing Amazon businesses, industry data showing it won 44% of all e-commerce sales in 2017, the biggest ever, underpin confidence in forecasts. Revenue is expected at $59.7bn, up 36.5%, EPS is seen at $1.80, up 17%. AWS, the largest cloud co in the world, rocketed 42%, Amazon’s fastest growing segment, but Google says it’s catching up. Amazon shares will be sensitive to any slowdown in cloud, or Prime Video subscriber momentum.
Apple Q1 Earnings - 1st February 2018
For Apple, mostly watch iPhone sales, after its most perfected brand new models went on sale in September. Previous ‘supercycles’ suggest sales could explode to 90 million from 41 million in the prior quarter. Apple is likely to see the biggest one-time smack from tax changes though. Upwards of $30bn could be lopped off the top line. Earnings and sales will need to at least match expectations for investors to look through the tax hit. Apple shares have been caned so far in January, losing 7% after marching almost 50% higher in 2018. Their drift lower may accelerate if results disappoint.
Google Q4 Earnings - 1st February 2018
Google is advertising, even more than Facebook. Revenue rose almost throughout 2017, and a 22% rise is foreseen in Q4 to $31.82bn. Holidays are expected to have boosted ‘other’ revenues, which includes hardware. With eight new products out late in the winter eyes will be on costs, but also sales, after ‘other’ rose 42% and 40% on the year in Q2 and Q3 respectively. Google says cloud sales contribute more to ‘other’, with “strong momentum” in Q3. That impetus will need to have continued for the stock to be properly underpinned. As per Facebook, Google’s main worry is regulation. The U.S. government looks set to begin asking questions about the more than three-quarter U.S. market share FB and GOOG control between them. The latter has also come a cropper in Europe over alleged abuse of search dominance. Its YouTube problem could also flare up again. How Google addresses these risks in its earnings call, could forestall any share price punishment.