Markets

US GDP growth beats forecasts; tech giants drive Nasdaq to record high – as it happened

Rolling coverage of a crucial growth report on the US economy, after strong results from America’s tech giants cheer the markets

And finally, European stock markets have closed higher – but Spain has bucked the trend as the Catalan crisis escalates further.

Britain’s FTSE 100 closed 18 points higher at 7505, while the French CAC and German DAX both gained around 0.7%. Consumer-focused companies did well, as did oil firms following the jump in Brent crude to a two-year high.

Related: Spain imposes direct rule after Catalonia votes to declare independence

The political outlook is very uncertainty, and investors are getting more nervous by the minute. Investors will be reluctant to hold Spanish stocks over the weekend, for fear we could see a repeat of the violence that took place on the referendum day.

EUROPEAN CLOSING REPORT: Spanish IBEX and Euro drop as Catalan parliament votes for independence . . . pic.twitter.com/lPOKBwZBqR

Alphabet revealed a 24% jump in third quarter profits to $27.8 billion and earnings per share (EPS) jumped by 5.6% to $9.57, easily exceeding the $8.33 analysts were expecting. The core advertising business and the other operations are performing well, but investors are as bit concerned about the rising costs. Cost per click fell by 18% and traffic acquisition costs exceeded dealer’s forecasts. Alphabet is still pouring more money and resources into its cloud division, and this is an area that has huge growth potential. The tock is up over 5% today.

Amazon registered a 34% jump in revenue to $43.7 billion and that compared with the forecast of $42.14. The EPS came in at 52 cents, which smashed the estimate of 3 cents. Amazon saw sales in North America jump by 35%, the rest of the world saw sales rise by 29%. Amazon Web Services (AWS) posted a 42% jump in sales – it is the most profitable division in the company. Amazon is expanding in the cloud commuting, and it is proving to be successful. The share price has gained 11% today.

This is a great fact:

Stunning factoid: Combined market cap increase in AMZN, GOOG and MSFT so far today, of $141bn, is up with total market cap of IBM ($143bn).

Amazon’s share price has now surged by 11%, raising the chances that Jeff Bezos will overtake Bill Gates and become the world’s richest person.

Align Technology, the dental equipment firm, is keeping Amazon off the top spot, though, after posting its own record results yesterday.

Here’s a chart showing the rise, and fall, and rise again of the technology-focused Nasdaq over the last two decades:

This rally in the oil price will cheer the Opec cartel, who have been restricting production in an attempt to push prices higher.

But…it may also persuade rival producers, such as America’s shale industry, to increase their own output.

Boom! Brent crude has pushed over $60 per barrel for the first time since July 2015.

#BREAKING: Brent crude #oil hits $60 a barrel for first time since July 2015 #OOTT #OPEC pic.twitter.com/xBObjq4Qe2

Anyone who bought tech stocks at the depths of the last recession, in 2009, is sitting on some massive profits:

The combined market cap of $AAPL, $GOOGL, $MSFT, and $AMZN
March 9, 2009: $327 billion
Today: $2.734 trillion pic.twitter.com/D0l7w3Euqp

Over in Greece prime minister Alexis Tsipras has attempted to quash heated speculation the his government is about to cut a €2.4bn deal with the Washington to upgrade its F16 fighter planes.

Here’s some more expert reaction to the news that the US economy grew faster than expected in the last quarter:

Neil Birrell, Chief Investment Officer at Premier Asset Management:

“The US GDP data released today shows that the economy is stronger than expected. It grew at 3% in the third quarter against consensus expectations of 2.6%.

The hurricanes made consumer spending hard to predict but overall they do not seem to have had a negative impact on growth. Inflationary pressures also look higher than expected, but the rate is still well below the Fed’s target. This news is positive for the Dollar and expectations for an interest rate increase will be on the up as well. Overall, the US economy is performing well.”

This has been the slowest growth expansion in history but also the smoothest, w/ real GDP in a very narrow range. Up 2.3% over past yr. pic.twitter.com/tpUs5lz0rN

U.S. Expansion hits 99 months – if continues 2 more years will be longest in history. Real GDP remains at 2.2%. pic.twitter.com/n8oAVunGki

“In spite of the obstacles thrown in its path by two devastating hurricanes, the US economy is flying at a fair clip. We may even see this accelerate in the last part of the year as economic activity that was hit by hurricanes Harvey and Irma recovers, and in the longer-term, we should see infrastructure investment in the areas most heavily affected.

The Nasdaq index of tech stocks has jumped by 1.8% in early trading, to a new all-time high.

Amazon, Microsoft, Alphabet (Google’s parent company) and Intel are all among the top risers.

BREAKING: Tech stocks are rallying hard on Wall Street.

Amazon’s shares have spiked by over 8% at the start of trading in New York, following last night’s impressive financial results. That takes them back over the $1,000 mark.

“We would characterize last night’s Amazon September results as a ‘Picasso-like quarter’ with the company handily beating all metrics across the board,”

“Last night’s quarter … is another feather in Bezos’ cap.”

Back in Europe, Spanish government bonds are being sold off after the Catalan parliament voted to declare independence.

Madrid’s stock market is also suffering, with the IBEX index of leading shares plunging by 2% as the crisis in the region escalates further.

Spain’s IBEX share index slides as #Catalan parliament votes to implement independence pic.twitter.com/1J48AV7GGX

The Catalan parliament has voted to establish an independent republic in defiance of the Spanish government, which is expected to fire the region’s president and impose direct rule within the next few hours.

On Friday afternoon, Catalan MPs voted for independence by a margin of 70 votes to 10. Two ballot papers were blank. The proposal, brought by the region’s ruling Together for Yes coalition and their far-left allies the CUP party, was bitterly attacked by oppostion MPs who boycotted he vote….

Related: Catalan parliament votes to declare independence from Spain

Donald Trump will surely be pleased by today’s GDP report, as it shows America’s economy has grown at a healthy rate on his watch.

But….how long will it last? Capital Economics predicts that GDP will accelerate next year, if the US president delivers on his tax and spending plans. But it could then slow sharply in 2019.

GDP growth for 2017 as a whole is currently tracking at around 2.1% and, assuming we see a modest fiscal stimulus in early 2018, we expect GDP growth to accelerate to 2.5% next year, even after allowing for a more aggressive pace of monetary tightening.

As the stimulus wears off and the cumulative monetary tightening begins to bit, however, 2019 could be a very different story. We expect GDP growth to slow to only 1.5%.

America’s economy has now posted two successive quarters of 3% annualised growth, for the first time in three years.

The Bureau of Economic Analysis says that America’s growth in the last quarter came from “personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, exports, and federal government spending”.

But “residential fixed investment and state and local government spending” both had a negative impact on growth.

The US dollar is strengthening, as Wall Street traders calculate that this solid growth raises the chances of an interest rate rise in December:

Dollar's good week just got better with 3Q GDP +3% pic.twitter.com/hkm4M5UQ7O

Economists are impressed by America’s economic performance over the last quarter, especially given the disruption caused by the hurricane season.

For example, here’s Mohamed El-Erian, chief economic advisor at financial services giant Allianz:

Good US #GDP print for the third quarter–3% annualized growth, compared to 2.7% consensus expectations,& follows 3.1% for the prior quarter

Q3 GDP grew at a healthy 3.0% (above consensus forecast of 2.6%), following 3.1% in Q2. The economy keeps motoring along at a healthy rate.

The good news: The economy keeps on keeping on, shrugging off political uncertainty, hurricanes, etc.

The bad: The more persistent part of growth—Final sales to private domestic purchasers—grew at only 2.2%. And advance numbers often revised.

Growth over the last four quarters was 2.3%. PDFP was 2.2% in Q4. We are still a ~2% growth economy. But a 2%+a little > 2%-a little.

For those that don't know, PDFP = consumption + fixed investment. Does not have inventories, NX, govt–all volatile. https://t.co/FrCW6KKBQF

Today’s GDP report shows that consumer spending across America slowed in the last quarter, to a rate of 2.4% from 3.3% in the second quarter. That is partly due to Hurricanes Harvey and Irma – so the underlying picture is probably stronger.

Businesses boosted their inventories, suggesting they expect strong demand in the coming months. This inventory investment added 0.73 percentage points to third-quarter GDP growth.

Breaking: America’s economy expanded at an annualised rate of 3.0% in the third quarter of 2017.

That beats Wall Street expectations, and is another quarter of solid growth.

The Wall Street Journal has compiled a helpful list of things to watch for in today’s US GDP report, due in 15 minutes.

They include:

.@WSJ on 5 things to watch in tomorrow's US 3rd quarter @GDP data release https://t.co/hRjy3dOMHE #economy #growth #markets pic.twitter.com/kXIRhryGnA

Analysts at ING predict a strong US growth report:

US GDP shortly. We're above consensus and looking for 2.9%. Look out for the potential upside from inventories. https://t.co/kcgbmcVo4a

Excitement is building on Wall Street as traders wait nervously to learn how America’s economy fared in the third quarter of 2017.

As explained in the introduction, economists predict that US GDP expanded at an annualised pace of 2.5% in July-September (the equivalent of growing by 0.6% during the quarter).

US GDP is Coming Along With #USD Volatility! Market expects the U.S. economy pace of growth at 2.6% annualized in Q3 from 3.1% before. pic.twitter.com/t5qnQ7Z0H4

The economy performed very well in the second quarter and another strong number is expected today, which will only increase the likelihood that the Fed raises interest rates at the December meeting.

While there’s no room for manoeuvre on this for the December meeting – a rate hike is fully priced in – there’s plenty of room next year with markets severely under-pricing the three hikes the Fed has projected for 2018.

Newsflash: US department store chain J. C. Penney has issued a profits warning – a timely example of how traditional retailers are struggling in the face of Amazon.

Newsflash from Moscow: The Bank of Russia has cut interest rates, by a quarter-point, to 8.25%.

Russian central bank cuts their benchmark rate 25 basis points to 8.25% as expected

Last night’s financial results are calming worries that technology companies had become dangerously overvalued.

The rally in the US stock markets this year has been partly driven by the FANG stocks (Facebook, Amazon, Netflix and Google). Those stocks had fallen in recent days, on fears that investors had got carried away.

Earnings driven by economic activity…FANG Stocks Suffer Longest Losing Streak Since Election, Earnings Hopes Slide https://t.co/pL9ewzydio pic.twitter.com/zODciV8IOD

“Alphabet reported an impressive set of results on Thursday evening, beating consensus expectations on every measure and delivering top-line growth in excess of 20% for the sixth straight quarter. The results were driven by strength in both core mobile and desktop search, ‘phenomenal growth’ from YouTube and further momentum in cloud services.

“Overall, the results reinforce our positive view on the company, as it continually adapts to a rapidly evolving computing environment, while leveraging advanced A.I. and machine learning capabilities to sustain a high level of growth.

Jeff Bezos might wrestle the title of the world’s richest person back from Bill Gates today, depending how Amazon and Microsoft’s shares perform today.

The 8.5% surge in Amazon’s shares in after-hours trading swelled Bezos’s fortune by over $6bn. That could be enough to put Bezos top of the pile.

Gates ended Thursday with a net worth of $87.9 billion, about $4.5 billion ahead of Bezos. Gates has been the world’s richest person since 2013, though he briefly slipped behind Bezos during intraday trading on July 27.

Gates ended that day on top.

Every weekday morning, Business Today will deliver the biggest stories, smartest analysis and hottest topics, direct to your inbox.

In other tech-related news…Britain’s competition watchdog is getting its teeth into hotel booking web sites.

The Competition and Markets Authority fears that customers are being unfairly pressured into making a booking, by warnings about how many (or few) rooms are left or how long a price might be available for.

Related: Competition watchdog probes high-pressure tactics of hotel booking sites

Woosh! European stock markets have hit a five-month high this morning as last night’s US tech results create an upbeat mood.

Technology stocks, and consumer-focused companies, are leading the rally this morning.

Alphabet’s results are also being cheered by technology analysts.

Here’s Bloomberg’s Mark Bergen:

Alphabet Inc. beat projections for third-quarter sales and earnings after a surge in Google ad volume helped the web-search giant shrug off concerns about regulatory scrutiny and an expensive foray into hardware.

Sales for the quarter rose to $22.27 billion and profit was $9.57 a share, the company said. Analysts on average estimated sales of $22 billion on earnings of $8.34 a share. Executives lauded “tremendous results” in mobile search ads. Yet the company cautioned investors the biggest costs that come with those ads — fees paid to distribution partners — will continue to rise, along with expenses from Google’s foray into devices and holiday-season marketing.

TAC [ Traffic acquisition costs] is surging, but the trade-off between growth and margin is a good one, with overall gross profit dollars still growing in excess of 20 percent.

Time is a flat circle.

Alphabet announced its third-quarter earnings today (Oct. 26), and yet again, it brought in a ton of cash, almost entirely from Google’s advertising business.

Here’s some reaction to Amazon’s forecast-smashing results.

The FT’s Anna Nicolaou:

Amazon grew quarterly sales by more than a third, helping the company turn a profit even as it spends heavily to disrupt industries ranging from groceries to logistics and television shows.

Shares jumped more than 8 per cent to $1,040 a share in extended trading, as the company led by billionaire Jeff Bezos reported that sales jumped 34 per cent to $43.7bn in the three months to the end of September.

“This company has finally gotten itself to the point where it can sustain its spending growth and still leave some crumbs for shareholders.”

“They are firing on all cylinders. The machine is churning,”

The BBC’s technology correspondent, Rory Cellan-Jones, is also impressed:

More evidence overnight of the huge and growing power of the tech giants with Amazon and Alphabet both unveiling stellar results

Amazon, Alphabet, Microsoft and Intel collectively hauled in roughly $2.2bn more profit and $19bn more revenue than in the same quarter a year ago.

That’s according to Marketwatch’s Jeremy Owens, who adds:

Alphabet had perhaps the most astounding beat of the afternoon, as profit rose $1.12 billion and revenue $9.5 billion from a year before. The Google parent company reported third-quarter net income of $6.73 billion, or $9.57 a share, on revenue of $27.8 billion.

That performance destroyed forecasts, as analysts on average expected Alphabet to report earnings of $8.31 a share on revenue of $26.9 billion.

Amazon, Alphabet, Microsoft and Intel together brought in 19 billion more revenue than the same quarter a year ago https://t.co/pVvAK9t952

Over in Japan, the Nikkei stock index has surged by over 1% to a fresh 21-year high following last night’s blisteringly good results from Alphabet, Amazon et al.

Mutsumi Kagawa, chief global strategist at Rakuten Securities, says investors are in an optimistic mood:

“Corporate earnings are rising to record levels in the world. And the IMF just upgraded its economic forecast for all of U.S., China, Europe and Japan.

World stock markets are upbeat this morning after the world’s largest technology companies smashed forecasts last night.

#Amazon is eating the retail world: Shares jumped >$1k in after hours as sales tops estimates. pic.twitter.com/gH1UM1urNk

Ad prices went down more than expected during the quarter, and traffic costs were higher than forecast — but revenue was boosted by a higher-than-predicted surge in the volume of clicks on Google ads across the world, especially in Asia.

these numbers from $AMZN and $GOOG are just nuts

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

We get a new insight into the health of the world’s largest economy today, when preliminary US GDP figures are released.

On October 25, the #GDPNow model forecast for real GDP growth in Q3 2017 is 2.7% https://t.co/3RcrhKWA7U pic.twitter.com/4uwUtQzcNt

Look for a sharp inventory swing to contribute a sizeable amount to the sequential change (just over 0.5ppt) while capex investment should also look firm (adding another 0.5ppt, possibly more after this week’s durables release).

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