Big tech earnings, the 10-year Treasury bond, and BlockFi withdrawals

Hello Folks,

Today, we take a look at the recent earnings of tech giants such as Microsoft and Alphabet. Let’s find out to see if big tech can tide over an uncertain macroeconomy in the near term.

Microsoft and Alphabet both announced expectation-beating quarterly revenue on Tuesday, even though the firms’ cloud divisions broke away from each other.

What does this mean?

Microsoft flew past Wall Street’s projections when it reported results late on Tuesday, announcing that revenue came in just above $56 billion last quarter, 13% higher than the same time last year.

That was mainly down to strong showings in the tech titan’s Azure cloud computing division and office software businesses. Alphabet will be envious of that, mind you. The cloud sector at Google’s parent company fell short of estimates, mustering up a roughly 22% uptick over the quarter versus 28% the one before.

While Microsoft stock is up 3.4%, Alphabet shares are down 6.7% in pre-market trading.

Why should I care?

For markets: Big Tech, bigger expectations.

Investors expect a lot from Big Tech, which means major companies are measured against lofty targets. Microsoft is banking on artificial intelligence (AI) to smarten up business in the long term, which explains why the firm poured cash into ChatGPT’s creator, OpenAI, and got to work on its own chatbot.

Looks like that’s already paying off: those AI-assisted quarterly results will have comforted investors’ worries that the cloud business – Microsoft’s biggest moneymaker – might be running out of steam, giving them more reason to trust the tech firm’s master plan.

The bigger picture: It’s nice for some.

Alphabet may have had issues with its cloud business, but the company can comfort itself with promising digital advertising results. That’ll bode well for rivals like Meta, Amazon, and Pinterest, too, suggesting that companies are still willing and able to splash out on ads on social media sites.

U.S. 10-Year Treasury Yield Spikes Over 5%

On Monday, the 10-year Treasury yield briefly crossed above 5% for the first time in 16 years as investors continued to dump bonds en masse, sending their prices lower and forcing their yields higher.

The rout has been going on for weeks, fueled by expectations that the Federal Reserve will keep interest rates at their current high levels for longer and that the US government will have to sell even more bonds to cover its widening budget shortfall.

In fact, concerns over the government’s near $2 trillion annual budget deficit prompted Fitch Ratings to downgrade the US’s credit rating in August, adding upward pressure to yields.

With the latest selloff, the prices of Treasuries with maturities of 10 years or longer have now declined by nearly 50% since their March 2020 peak, putting them on course for an unprecedented third year of annual losses.

BlockFi Begins Wallet Withdrawals

Crypto lending platform BlockFi emerged from bankruptcy and is ready to repay some of its creditors. BlockFi’s emergence from bankruptcy means that it can now attempt to recover assets from other firms it believes owe it money.

This includes bankrupt crypto platforms such as Three Arrows Capital (also known as “3AC”) and FTX. The firm will also be able to continue distributing assets to its creditors and processing claims.

Headlines You Can’t Miss!

Treasury yields hold steady as investors assess the state of the economy

‘Incredible alpha opportunities’ in the year ahead despite headwinds, says Carlyle Group CEO

Deutsche Bank surges 7% on earnings beat

China’s 1 trillion yuan debt plan

Galaxy predicts a 74% Bitcoin price increase first year after the ETF launch

Chart of the Day

The inverse relationship between gold prices and interest rates has broken down since the huge rise in real yields that began early last year. And there are a few reasons for that.

First, gold demand has been propped up by record buying activity from central banks as some countries diversify their reserves to reduce their reliance on the dollar.

Second, gold has seen an increase in demand from Chinese investors, who are faced with a property crisis, a falling yuan, and tumbling yields. In Shanghai, the local price of gold surged last month, at times commanding a record premium over international prices of more than $100 an ounce, compared with an average over the past decade of less than $6.

Third, gold’s perception as a safe-haven asset has boosted its allure recently, given the rise in geopolitical and economic volatility. The precious metal's price surged as much as 10% this month, hitting a five-month high, as fresh conflict erupted in the Middle East.

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.