Meta Reality Check, U.S. GDP, ECB Rate Hike - What's Moving Markets

© Reuters

By Geoffrey Smith

Investing.com -- Facebook owner Meta sheds another $65 billion in value after another expensive quarter. It's now up to Apple and Amazon to rescue Big Tech's earnings season. The U.S. will report third quarter GDP figures which are almost certain to be highly misleading, while jobless claims and durable goods orders are also due. Stocks are set to open mixed, with more bumper earnings from the oil and gas sector overnight supporting value over growth. The European Central Bank is set to raise its key rate by 75 basis points again. And oil prices rise amid reports that the G7 is close to giving up on its plans to cap the price of Russian oil. Here's what you need to know in financial markets on Thursday, 27th October.

1. Reality check for Meta

Actual reality, rather than the virtual sort, caught up with Meta Platforms (NASDAQ:META) after the Facebook owner reported another quarter of falling revenue, without any sign that its big bets on the so-called Metaverse are close to paying off. Revenue will also fall nearly 10% short of consensus forecasts in the current quarter, at around $30 billion by Meta's estimates.

Meta stock fell over 20% in premarket trading after the company said it expects its costs to rise by over 14% as it continues to plow money into what it hopes will be online meeting place of the future. The challenges posed by a weakening ad market, competition from TikTok, Apple's (NASDAQ:AAPL) data policies, and broader regulatory issues suggest that margin compression is likely to extend into next year. Founder and CEO Mark Zuckerberg asked investors for 'patience'.

2. Beware the Q3 GDP report

The U.S. will report first estimates for third quarter gross domestic product, a release that may send some confusing signals.

Reported GDP is set to return to positive territory with annualized growth of 2.4% in the third quarter, although analysts argue that this is largely a statistical quirk: big inventory effects in the first two quarters generated negative GDP prints, at a time when employment was growing strongly. In the third quarter, by contrast, employment growth has slowed sharply over the summer, as have real economy indicators such as retail sales.

As such, market reaction will depend on deciphering what lies below the headline numbers.

Other, more real-time data due at the same time may be easier to interpret: weekly jobless claims are expected to have ticked up from last week, while durable goods orders are expected to extend a trend of underwhelming growth.

3. Stocks set to open mixed; strong consumer, energy earnings overnight offset tech weakness

U.S. stock markets are set to open mixed, with tech underperforming after Meta delivered more evidence that the patience sought by Zuckerberg is in short supply with investors these days.

By 6:20 ET (10:20 GMT), Dow Jones futures were up 93 points or 0.3%, while S&P 500 futures were flat, and Nasdaq 100 futures, where most big tech names are concentrated, were down 0.5%, dragged down by the Meta effect.

Disappointing reports and guidance from Big Tech so far this week have raised the stakes for Apple and Amazon (NASDAQ:AMZN), both of which report after the closing bell. Amazon's Cloud hosting business – which has been its cash cow over most of the last decade – will be under the spotlight after Microsoft (NASDAQ:MSFT) forecast a slowdown in growth for its comparable unit, Azure.

Mastercard (NYSE:MA), McDonald's (NYSE:MCD), Merck (NYSE:MRK), and Comcast (NASDAQ:CMCSA) all report early, along with Caterpillar (NYSE:CAT). Intel (NASDAQ:INTC) will try to avoid joining a series of downbeat reports from chipmakers later. Overnight news was mixed, with STMicroelectronics NV (EPA:STM) posting weak numbers, but oil and gas giants Shell (LON:RDSa) and TotalEnergies (EPA:TTEF) reporting another quarter of extremely strong cash flow. Unilever (NYSE:UL), Carlsberg (CSE:CARLb), and AB InBev (EBR:ABI) also succeeded in pushing price increases on to their global customer bases.

4. ECB set to hike into oncoming recession; Egypt devalues sharply

The European Central Bank is expected to raise interest rates by 75 basis points for a second straight meeting, despite the evident slowdown in the Eurozone economy.

The ECB's decision is due at 08:15 ET, with ECB President Christine Lagarde's press conference due half an hour later.

The meeting comes amid rising confidence that advanced economy central banks are starting to approach the end of their policy tightening cycles, even though official rates are still well below current inflation. The Bank of Canada raised its key rate by only 50 basis points on Wednesday rather than the 75 basis points expected.

In emerging markets, the pressure from higher U.S. interest rates continued to take its toll: the Egyptian pound fell sharply as the central bank was forced to abandon its defense of the currency.

5. Oil rises amid signs of G7 price cap plan collapsing

Crude oil prices rose amid reports that the price cap on Russian oil that had been proposed by G7 countries is on the verge of being effectively abandoned.

The practical difficulties of enforcing such a mechanism had always been evident, given the refusal of major importers such as India and China to go along with it. The U.S. appears also to have underestimated the strength of feeling its proposals created among OPEC producers, who saw the move as the thin end of a wedge that would one day hurt their own oil revenues.

By 06:35 ET, U.S. crude futures were up 0.4% at $88.25 a barrel, while Brent was up 0.4% at $94.12 a barrel. An IEA report forecasting a peak in global demand for fossil fuels within a decade had little impact on sentiment.