Microsoft & Alphabet Shares Drop After Earnings. Fed Decision Next

Equities

Alphabet Inc and Microsoft Corp saw their shares fall in extended trading post-earnings reports, highlighting the market's cautious approach to 'the magnificent seven' tech giants. The S&P 500 and Dow Jones, however, showed varied responses, with the latter finishing higher, indicating a diversified market reaction to different sectors.

Despite showcasing strength in AI technologies, Microsoft's shares dipped as the market absorbed the implications of associated costs. This response indicates investors' concerns about the expenses linked to the development and integration of AI capabilities, and how these might affect the company's profit margins and long-term financial health.

Similarly, the negative reaction to Alphabet’s earnings can be attributed to the company's performance in the key area of online advertising, despite a strong showing in its cloud division. Investors and analysts closely scrutinise Alphabet's earnings for insights into the broader digital advertising market and the tech industry's health.

Australia’s benchmark ASX index closed at a record high on Wednesday while the UK market, as represented by the FTSE 100 and FTSE 250, closed at near three-week highs on Tuesday. Companies like WPP boosted the market with positive earnings reports, while broader economic indicators like easing price pressures influenced British investor confidence.

Forex

The dollar is headed for its biggest monthly gain since September, while the yen faces its sharpest drop in over a year. The euro has dipped against the dollar, with investors weighing in on the likelihood of a Fed rate cut in March and the increasing likelihood of earlier cuts from the ECB.

The Gross Domestic Product (GDP) of the 20 eurozone countries remained unchanged in the fourth quarter compared to the preceding three months. This stability was largely due to robust growth in Portugal and Spain, along with a slight rise in Italy's economy. However, during the last quarter of 2023, Germany's economy experienced a contraction.

The British pound continues to trade in a tight range, reflecting the market's uncertainty around the Bank of England's policy decision on Thursday.

Elsewhere

The unexpected rise in US job openings has hinted at a robust labour market, potentially influencing the Federal Reserve's stance on its key policy rate, which in turn affects bond market dynamics.

Meanwhile, the IMF's updated growth outlook is influencing investor sentiment, potentially affecting stock indices. The performance of tech stocks, particularly those in the Norwegian wealth fund, has contributed to a record $213 billion profit, demonstrating the tech sector's significant impact on market dynamics.