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Tech titans deliver earnings beats, jobs report looms - what's moving markets

Published 08/04/2023, 05:51 AM
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Investing.com -- Tech giants Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) report higher-than-anticipated earnings even as a slowdown in consumer spending weighs on returns at both companies. Meanwhile, the release of the key U.S. labor market report for July is due out on Friday, with traders hoping that the numbers could provide some clues about the path ahead for Federal Reserve interest rate policy.

1. Futures point higher after fresh Big Tech earnings

U.S. stock futures rose on Friday, led higher by the Nasdaq 100 futures, as investors gauged results from two tech behemoths and geared up for the release of a crucial monthly jobs report.

At 05:11 ET (09:11 GMT), the Dow futures contract had gained 65 points or 0.20%, while S&P 500 futures climbed by 18 points or 0.40%, and Nasdaq 100 futures jumped by 88 points or 0.57%.

Sentiment heading into the final trading day of the week was aided by tech bellwether Apple and e-commerce group Amazon. Both reported better-than-expected earnings in the latest quarter despite headwinds from weaker consumer spending.

Meanwhile, the closely-watched U.S. nonfarm payrolls report for July is due out at 08:30 ET on Friday. The data, which may play into the Federal Reserve's next policy decisions, is expected to show that the world's largest economy added fewer jobs during the month.

2. Apple profits top estimates despite hardware sales dip

Apple posted higher-than-anticipated quarterly income thanks in part to strong services demand, but revenue still fell as consumers reined in spending on the iPhone and iPad maker's gadgets.

Net profit in the three months until the end of June increased by 2.3% from a year ago to $19.9 billion, surprising Wall Street estimates for a decline of 3.6% to $18.7B. Earnings per share of $1.26 also beat Bloomberg consensus expectations of $1.20.

Undergirding this performance was Apple's services unit, which includes a range of digital offerings like Apple Music and iCloud. Revenue in the segment jumped by 8% year-on-year to a record $21.2B as subscribers grew by 150 million.

Total revenue of $81.8B was above projections. But the top-line figure decreased on an annual basis for a third-consecutive quarter, weighed down by falling hardware sales.

Apple's ubiquitous iPhones, iPads, and Macs all saw sales slump, reflecting a broader slowdown in customer expenditures on non-essential items during a time of economic uncertainty.

Some analysts pointed to these declines as the reason for a premarket dip in Apple's shares on Friday.

3. Cloud unit resilience boosts Amazon returns

Growth at Amazon's cloud computing division slowed by less than expected in the second quarter, sparking hopes that the much-scrutinized unit will soon see a turnaround from a recent downturn.

The business, known as Amazon Web Services, posted revenue growth of 12% in the period ended on June 30. Bloomberg consensus estimates had called for an uptick of 9.48%.

Amazon previously warned that revenue at AWS had slowed to 11% in April, down from 16% in the first quarter and 29% in 2022, a trend that has been largely chalked up to slackening client spending.

Even though Amazon noted that these pressures remain, online store sales at the company jumped by 5% excluding currency effects to $53 billion, topping expectations.

The increase, along with recent cost cuts that have included steep headcount reductions, boosted earnings per share and total net sales up to $0.65 and $134.4B, respectively. Both were higher than projections.

Shares in Amazon climbed sharply premarket.

4. U.S. jobs report looms

Job growth in the U.S. is expected to have decelerated to its lowest level since 2020, as a long-standing string of aggressive Federal Reserve interest rate hikes are seen taking a toll on the labor market.

Economists predict that the U.S. added 200,000 positions in the month, down from 209,000 in June, while the rate of increase in average hourly earnings is also forecast to slow to 0.3% from 0.4% on a monthly basis.

Loosening a tight job market has been a central tenet of the Fed's latest cycle of rate rises, with policymakers arguing that cooling labor demand and wage growth could help corral elevated inflation.

But the unemployment rate is still projected to stay unchanged at 3.6%, suggesting that the labor market remains robust.

The numbers could factor into how the Fed evaluates its next decision on borrowing costs. The central bank raised rates by 25 basis points at its last meeting in July, a move that some observers believe could mark the end of its over-year-long tightening campaign. But the Fed gave itself the flexibility to hike rates further if needed, saying that its upcoming moves will be "data-dependent."

5. Crude prices gain as Saudi Arabia, Russia deepen output cuts

Oil prices climbed Friday after major producers Saudi Arabia and Russia announced fresh output cuts, suggesting that there will be further tightening in global supplies.

Saudi Arabia extended on Thursday a voluntary oil production cut of 1 million barrels per day until the end of September, while Russia has also said it will slash its oil exports by 300,000 barrels per day next month.

These cuts came just before a meeting of the Organization of the Petroleum Exporting Countries and its allies later this session, which makes more reductions from the group unlikely.

By 05:10 ET, the U.S. crude futures contract traded 0.5% higher at $81.98 a barrel, while the Brent contract moved up by 0.5% to 85.54 per barrel. Both measures are on course for a sixth consecutive week of gains.

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