The most dovish statement year to date by the Fed was released yesterday. They are “patient” and flexible in terms of reducing the size of their balance sheet. It is highly likely the word "patient" means no rate hike until the second half of this year as we discussed yesterday. This killed the back of the bull rally for the dollar index but investors should make no mistake in forgetting the fact that every meeting is a live meeting. The Fed is data dependent and they can change their tone anytime.
Donald Trump, the U.S. president, must have been a happy person yesterday after listening to the Fed stance because it shows that the Fed has capitulated to his demand. He could not resist but to tweet that Dow Jones has broken above the 25K.
Of course, market participants are also happy as for them Christmas has come early and because of this reason we are seeing a lot of optimism in the markets and major indices are trading higher. In fact, this news is so powerful that investors have ignored all other adverse factors such as the ongoing trade war between the U.S. and China, the slow growth over in China and the U.S. cooperates in blaming their poor earning on China.
Earnings: Facebook
Facebook Inc (NASDAQ:FB) reported another stellar quarter and made its investor comfortable. Facebook's team has all the necessary tools available to fight any situation. The increase in their user number in Europe shows that the firm has the right people who can not only understand the data privacy challenges for the company but they can find innovative solutions around it. It is because of this that the firm was able to increase its revenue along with healthy operating profit margin.
However, it is not about the current quarter, the challenges are ahead and the management needs to make sure that its spending doesn’t get out of control because it is expected to increase this number. Any increase in spending should justify user numbers, currently, the expectations are that this number may go flat. Increasing user activity and new members are the two key areas for Facebook where it drives the most of its margin and any dent in this area is only going to push the profit margins lower.
Shell
Royal Dutch also came out with their smashing earning numbers, riding the wave of uncertainty. The Anglo-Dutch earned $5.69 billion, ahead of the average estimate of $5.39billion. The company used its cash flow very wisely and this resulted in working capital deployed in the right place and at the right time. Cash flow from operation was $22 billion and the positive move brought a benefit of $9.1 billion. The company has kept their top priority of keeping the cost low and this resulted in their fourth-quarter earnings as the highest period in nearly 6 years. In other words, their earning for the fourth quarter matched the numbers when Crude price used to $100. This really shows the importance of controlling the cost because right now the cost of crude $54 a barrel.
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