Almost $200 billion – roughly the size of New Zealand’s economy – was wiped from the market valuation of Meta Platforms, formerly known as Facebook, after a weak earnings report and a downgrade in its earnings guidance (expected earnings) for the upcoming quarter.
Key themes for the week include:
- Eurozone inflation hits its highest level on record
- Johannesburg Stock Exchange (JSE) recovers to above 75 000
- Organization of the Petroleum Export Countries and its allies (OPEC+) sticks to production output plans
- German government bond yields rise
META PROBLEMS
Shares in Meta Platforms fell more than 20% in pre-market trading early on Thursday after the company downgraded revenue expectations because of increasing competition from the likes of ByteDance’s TikTok. The company stated that it expected revenue growth to slow as users were spending less time on its more lucrative services. First quarter revenue is expected to be between $27 billion and $29 billion, below expectations of $30.3 billion, making it Facebook’s slowest growth period in its history. Company executives cited inflation as weighing in on advertiser spending, as well as last year’s changes by Apple to ad-tracking, which will cost Meta $10 billion this year.
While Facebook’s monthly users held steady last quarter at 2.91 billion, daily active users declined from 1.93 billion to 1.92 billion. This is Facebook’s first quarter-to-quarter drop in global daily users in its 18-year history.
Investors were also given a glimpse into the cost of building a metaverse as the group broke out its Facebook Reality Labs unit, which is responsible for the creation of its virtual and augmented reality products. This unit lost $3.3 billion in the last quarter and $10.2 billion over the year. Meta Platforms CEO Mark Zuckerberg warned that the investment is not going to be profitable anytime soon, but that the metaverse will be the key successor to the mobile internet and in the future, will generate billions of dollars in digital commerce daily.
DATA IN A NUTSHELL
The United States (US) ISM Manufacturing Purchasing Manager’s Index (PMI) fell to 57.6 in line with expectations but still below December’s reading of 58.8. While the data indicates an expanding US economy (for the twentieth month in a row), January’s PMI was the lowest since November 2020, in-part reflecting the supply-chain and labour market pressures that the US economy is feeling. US jobs also data disappointed. The ADP’s National Unemployment release indicated that the private sector cut 301 000 jobs in January 2022, while economists were expecting an employment increase of 180 000 jobs. The US employment numbers are admittedly murky given the impact the Omicron variant of COVID-19 has been having on the country’s labour force.
Eurozone inflation data, released on Wednesday, revealed the highest consumer inflation rate on record for the region, in January. At 5.1%, it exceeded market expectations of 4.4%. Energy costs, which increased by 28.6% year-on-year, were the main contributor while unprocessed food prices increased by 5.2%. Above-expected inflation will add pressure to the European Central Bank (ECB) to act against its own guidance of keeping short term interest rates fixed until 2023. In fact, the market is already expecting two rate hikes this year, effectively calling the ECB’s bluff.
China’s Caixin PMI disappointed at 49.1 points versus market expectation of 50.4. A PMI below 50 points to a contraction in activity. The manufacturing sector has been hobbled by China’s unpopular zero-tolerance COVID policy, which is adding to ongoing supply-chain blockages and disruptions. With regards to China’s property sector, recent data indicate improving liquidity conditions in China’s property debt market, as domestic loans increased by 7.9% year-on-year after last year’s third quarter, when loans increased by 7.6% year-on-year which was the lowest on record.
MARKET RECOVERY UNDERWAY
Up to Wednesday, the S&P500 Index, standing at 4 589, has recovered some of last week’s losses after market fears heading into the Federal Open Market Committee meeting sent asset prices into a tailspin. However, Thursday’s trading saw the S&P 500 Index losing 2.4%.
The Euro Stoxx 50 Index, declining only 3.1% year-to-date, has shown resilience relative to US equity markets this year, as US Federal Reserve (Fed) actions had less of an impact on European equities. The index is up 1.5% this week after Thursday’s trading, which saw some pull-back after the Bank of England delivered its second 0.25% interest rate hike, in line with expectations, and eurozone inflation numbers upset the market’s dovish ECB monetary policy expectations. Nokia’s operating profits for the fourth quarter of 2021, beat expectations by 10.5%, and the company announced a resumption of its quarterly dividends, as its turnaround plan continues to deliver favourably.
The JSE All Share Index rose by 2.4% this week, to 75 195, marking a recovery after last week’s global risk-off event pulled the index down 1.8%. Apparel retailer, Pepkor, announced a deal with Brazilian value-apparel retailer, Grupo Avenida. Pepkor is looking to acquire an 87% stake in the Brazilian company, as it looks to expand into a new, and apparently fragmented, Brazilian clothing sector.
COMMODITIES
The OPEC+, led by Russia, met on Wednesday and stuck with previously agreed-upon plans to boost oil production by a moderate 400 000 barrels per day, despite pressure from top consumers to raise output more quickly. Brent Crude fell $0.61 on Thursday to $88.86 a barrel but remains within striking distance of the $90 level. Prices are being supported by steadily increasing demand and tight supply across major world producers.
A day after weak US private payrolls data sent bullion prices to a one-week high, prices eased on Thursday. Gold reached its highest level since 27 January on Wednesday, reaching $1 810.86 per fine once, but declined 0.3% on Thursday to $1 801.30. Gold has been trading around the $1 800 level for almost a year now and is struggling to break out of this range.
In other metals markets, silver shed 1.2% to $22.36 an ounce, while platinum fell around 1% to $1 022.95, and palladium was flat at $2 368.83.
EURO REFLECTS ECB CONCERNS
This week has seen a rapid decline in the pricing of US Dollar Index futures which fell to 95.6 on Thursday, from last week’s high of 97.4, on the back of Fed policy expectations. The greenback’s retreat signals that the market may have fully priced in the expected Fed interest rate hikes, while recent European monetary policy also contributed to the weakness.
On Thursday, the ECB kept rates unchanged. However, the market does not seem convinced this is the correct move, after inflation numbers coming in. In response, yields on Germany’s 10-year government bonds increase by 0.10% to 0.136% on Thursday, their highest yield since February 2019, while the Euro rallied on the day, gaining 0.9% against the dollar.
The rand is trading at R15.24/$, R17.48/€ and R20.75/£.