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What happened last week?

US

  • Big US banks got earnings off to a comfortable start.

Europe

  • The European Central Bank cut interest rates again.
  • ASML and LVMH sent shockwaves through markets.

Asia

  • Chipmaker TSMC assured investors that AI demand is still booming.

    Why It Matters

    US banks are on a roll. JPMorgan, Morgan Stanley, Bank of America, and Citigroup kicked off earnings season with one expectation-beating result after another, thanks to some strong stock trading and dealmaking. Morgan Stanley’s wealth management arm continued crushing it. Although Citigroup and Bank of America both saw loan losses jump, it didn’t overshadow their profits.

    The European Central Bank (ECB) lowered its key interest rate for a third time this year, as widely expected. The central bank is moving with purpose, aiming to support an economy flanked by troubles. Growth in the region has been subdued, and weaker consumer activity, a manufacturing slowdown in Germany, and government belt-tightening in France suggest it could worsen.

    It was a rough week for big acronym companies in Europe: LVMH and ASML surprised markets with negative quarterly updates. The disappointment came as Chinese demand for both luxury goods and semiconductor production equipment slowed.

    The news from ASML, Europe’s third-biggest stock, sent shockwaves through global chip shares as investors ratcheted down expectations for 2025. Meanwhile, LVMH, Europe's number two stock, said Chinese consumers had switched from buying to window shopping, as the country’s economic slowdown continued to bite.

    Confidence in AI demand remained buoyant as TSMC, the world’s biggest producer of advanced chips, announced third-quarter revenues and profit margins that beat estimates, and delivered an upward revision to its 2024 forecasts. It now predicts that sales will climb roughly 30% in US dollar terms this year, up from the previous projections in the mid-20% range. Its CEO, speaking to investors, said AI demand is only just beginning. Even ASML, after its bruising result, said AI remained a bright spot for its business. That helped send Nvidia’s stock to a record high.

    This week’s focus: Actions, Reactions

    In the short term, stocks tend to move on psychology and positioning – but over the long term, valuations and cash flow matter more. That’s why quarterly results are such an important driver. In fact, share prices make bigger moves now on earnings day than over the past decade – and it’s partly because of the growing understanding of how telling those updates are, but it’s also because of technology. An increase in computerised decision-making in markets and the shift toward passive investing have changed the market. These days, shares moved an average of 4.9% on their company’s earnings day – roughly four times the average.

    So, you may want to hold onto your hat in the next few days if you’re investing in Tesla or Amazon. The two card-carrying members of the Magnificent Seven are set to release earnings. Let’s be honest, neither has been all that “magnificent” recently. Even as the S&P 500 has vaulted to record highs, investors in both stocks have seemed downright unimpressed.

    Tesla’s recent robotaxi reveal was a classic case in point: Elon Musk’s big autonomous vehicle spectacle failed (spectacularly) to summon even mild enthusiasm from the market. Amazon’s another “prime” example: despite its gains in cloud computing service, its steep valuation has caused investors to rotate into cheaper companies – even while sticking with other high-priced Mags. When the firm opens its books this week, investors will be closely scrutinising its spending outlook on its AWS cloud unit – not for what it means for Amazon, but what it hints about Nvidia. The hyperscaler is one of the chipmaker’s biggest customers, after all. Nvidia, the do-no-wrong member of the original Magnificent Seven, hit an all-new high last week – the only one of the crew to do so.

    Outside of US stocks and the Magnificent Seven, there’s another risk to keep on your radar: UK investors will be on edge for the next little while, watching for any hint about potential tax and spending plans to be included in the new government’s budget, due on October 30th.

    On The Calendar

    • Monday:Nothing major.
    • Tuesday:Earnings: 3M, GE Aerospace, Philip Morris, General Motors, Verizon.
    • Wednesday:US home sales (September), Eurozone consumer confidence (September). Earnings: AT&T, Boeing, CME Group, Coca-Cola, GE Vernova, Thermo Fisher Scientific, International Business Machines, Newmont, ServiceNow, Tesla.
    • Thursday:UK PMI (October), Eurozone PMI (October), US PMI (October). Earnings: Keurig Dr Pepper, Amazon.
    • Friday:Japan Tokyo inflation (October), US durable goods (September), US consumer sentiment (October). Earnings: Aon.

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