Markets React to Amazon’s AWS Alert, Upcoming PCE Data, and European Economic Indicators
U.S. stock futures fell on Friday, as traders assessed earnings releases from companies, including Amazon, which reported a slowdown in revenue growth at its cloud-computing division. The Dow futures contract slipped 0.50% to 168 points at 05:23 ET (09:23 GMT), while S&P 500 futures declined 0.49% to 20 points, and Nasdaq 100 futures dropped 0.39% to 51 points. After the bell, Amazon shares declined more than 2% in after-hours trading. Intel shares climbed, as the chipmaker predicted that its margins would improve in H2 2023. Meanwhile, shares in social media site Pinterest lost more than a tenth of their value due to a slump in ad spending, while shares in image-sharing social media firm Snap went into the red following a decline in quarterly revenues. Gaming and media firm Sony reported that it expected profits to fall from a record high in the current fiscal period due to weakness at its financial services unit. Later in the day, Exxon Mobil and Chevron will release their earnings results.
Amazon initially reported revenue growth of its key Amazon Web Services unit at $21.4bn, higher than expected, which propelled its stock price. However, the company’s gains were reversed when its Chief Financial Officer Brian Olsavsky warned that customers were curbing their spending due to “tough economic conditions”, leading to sales growth rates in April that were “about 500 basis points lower than what we saw in [the first quarter].” Analysts at Morgan Stanley have said that the growth prospects of Amazon Web Services look uncertain in the near term but remain positive over a longer period of time.
Investors are now looking to the Federal Reserve’s inflation gauge, which is due later in the day, to ascertain how much the central bank’s monetary policy is impacting price growth. The personal consumption expenditure index, excluding volatile items such as food and energy, is forecast to have risen by 0.3% in March, in line with the previous month, while on a year-on-year basis, it is expected to decline to 4.5% from 4.6% in February. The Fed has increased interest rates rapidly over the past year to combat runaway inflation. However, the increase in borrowing costs is starting to impact overall growth. On Thursday, Commerce Department data revealed that U.S. economic activity decelerated more than anticipated to 1.1% in Q1 due to rising rates and high inflation.
In the Eurozone, economic growth for Q1 came in below economists’ estimates, affected by stubbornly high prices and rising interest rates. The region’s seasonally adjusted gross domestic product rose by 0.1%, higher than Q4’s stagnation but below the predicted 0.2%. The year-on-year basis showed GDP to be 1.3% in January to March, down from 1.8% in the prior period, with Germany’s economy failing to grow, although there was an increase in France, Italy and Spain. The European Central Bank’s policy-setting meeting is due next week, with the ECB expected to raise rates in early May, although the size of the increase is still subject to debate.
Oil prices were volatile, with traders digesting economic data showing stagnating activity in Germany, which added to disappointing U.S. growth in Q1. U.S. crude futures fell 0.87% to $74.11 a barrel by 04:45 ET, while the Brent contract dipped 0.70% to $77.67. The benchmarks are set to register declines of over 3% this week, bringing their drops to nearly 10% over the past two weeks, amid concerns