Big Tech blues: investors turn sour over runaway costs

Today’s top stories

• The core personal consumption expenditures index, the Federal Reserve’s preferred inflation metric, rose 0.5 per cent in September, taking the annualised rate to 5.1 per cent. It follows data yesterday showing the US economy bounced back in the third quarter by a more-than-expected 2.6 per cent.

• Japan announced a Y29.1tn ($197bn) stimulus to ease the impact of soaring commodity prices and a falling yen, just hours after the Bank of Japan ruled out any early rise in interest rates.

• Elon Musk completed his $44bn purchase of Twitter after months of legal wrangling. Here’s what he’s got planned and here’s the takeover saga in a timeline of tweets. And if you want a fun read for the weekend, see how the “Chief Twit” got on with editor Roula Khalaf in Lunch with the FT.

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Good evening.

“Remember what the bond market thought of Liz Truss’s plans for the UK? The stock market takes a similar view of Zuckerberg’s plans for Meta — only much, much less enthusiastic.”

That was how commentator Robert Armstrong summed up the reaction to another quarter of declining revenues at Facebook’s parent company, but the sentiment could equally be applied to most of its Big Tech rivals in a week that saw $800bn wiped off their stock market value.

In Meta’s case, investors were also a bit sniffy about the company’s big bets on the metaverse and artificial intelligence and the lack of evidence they were paying off. In any case, they will have to suck it up: the Meta boss has voting control of the company. “Happily for Zuckerberg, he can’t be fired. The right metaphor for him is not Liz Truss; it’s Xi Jinping,” Armstrong concludes in his Unhedged newsletter (for premium subscribers). 

The tech rout continued today with Amazon shares diving after the ecommerce and cloud computing group, often cited as a modern bellwether for the US economy, issued disappointing revenue forecasts for the fourth quarter, which includes the critical holiday selling season. And, as the Lex column points out, its position as the world’s biggest retailer means it is very exposed to shrinking consumer expenditure outside the US too.

Apple was also gloomy about the December quarter, signalling “significant” problems from the surging dollar and supply issues with its latest iPhones, but it bucked the trend of falling shares on better revenues and earnings than expected.

On Wednesday, Google parent Alphabet reported a severe slowdown in its core search ads business, sending jitters through the world of digital advertising and stoking wider fears of a US economic slowdown. Marketing budgets are often the first victims when companies cut costs.

Microsoft was likewise pessimistic, particularly about its cloud computing business, knocking hopes this might offset a slump in the PC market. Rising energy costs in its giant cloud data centres were also a significant drag on profit margins.

As well as disappointing growth in advertising, ecommerce and cloud computing — three of the main drivers of growth in the digital economy — the slump in Big Tech market values was also a reaction to profligate spending, writes West Coast editor Richard Waters.

In the companies’ defence, there can often be a mismatch between the tech industry’s big investment cycles and Wall Street’s hunger for near-term profits, he points out.

“If Mark Zuckerberg is right in arguing that Meta has the chance to become as central in the metaverse era of computing as Microsoft was in the PC era, then wasting the odd $10bn will seem inconsequential.”

Need to know: UK and Europe economy

UK prime minister Rishi Sunak and chancellor Jeremy Hunt are looking at tax increases and public spending cuts to fill a £50bn hole in the public finances in their autumn statement due on November 17. Economists say raised estimates of immigration could cut the gap by £5bn. After the adverse investor reaction to the recent “mini”-Budget, Sunak and Hunt will be hoping the “moron premium” demanded by the markets will be replaced by a “dullness dividend”.

Even if the nation’s finances are less chaotic, political problems remain for the Sunak government. Northern Ireland will probably face fresh elections on December 15 after a deadline passed for the province’s political parties to form a power-sharing executive.

Germany, the eurozone’s biggest economy, defied fears of recession with 0.3% growth in the third quarter, bringing GDP back to its pre-pandemic level. Inflation however has surged to 11.6% per cent.

The European Central Bank yesterday raised its benchmark interest rate by 0.75 percentage points to 1.5 per cent but subtle changes in tone from ECB chief Christine Lagarde suggested a dovish pivot was coming. EU business sentiment hit its lowest level in two years in October.

Need to know: global economy

The International Energy Agency said fossil fuel demand would peak around 2030, a date brought forward by Russia’s invasion of Ukraine. The US is exporting record volumes of oil as it takes on a bigger role in world markets.

One of Brazil’s most bitterly fought elections climaxes on Sunday as veteran leftist Luiz Inácio Lula da Silva tries to replace Jair Bolsonaro as president. Polls suggest Lula has a narrow lead but underestimated Bolsanoro’s showing in the first-round vote.

The US chamber of commerce in Shanghai, China’s financial capital, said companies were pulling back on investment, deterred by strict pandemic controls. The Foxconn iPhone factory in Zhengzhou is a prime example. Here’s an analysis of how President Xi Jinping’s tightening of his grip on power last week spooked global markets, and if you want more, have a listen to the latest Rachman Review podcast.

These fears add to the feeling that a two-bloc deglobalisation process is under way. Tokyo bureau chief Leo Lewis writes on how Asian chip manufacturers and others are starting to recognise that straddling the Sino-American divide is no longer an option. You can read more about the “Tech cold war” over semiconductors in our new collection.

Geopolitical tensions and rising competition mean German exporters are rethinking their “love affair” with China after years of surging sales.

Australia on the other hand has reaped unexpected benefits from trade sanctions introduced on some of its goods by China in 2020. Figures out this week showed Australia was benefiting from exporting to alternative markets. China, however, is still dependent on Australian iron ore.

Need to know: business

In what looks like the oil and gas industry’s most profitable year ever, Exxon third-quarter profits tripled to $20bn, Chevron reported its second most profitable quarter ever and Shell profits doubled to $9.5bn, fuelling cries for more windfall taxes on the sector. Norway’s Equinor, Italy’s Eni and France’s Total also reported bumper earnings.

Centrica reopened Rough, Britain’s largest gas storage facility, albeit at around 20 per cent of its previous capacity. Economics editor Chris Giles is optimistic that the falling price of gas heralds the end of Europe’s energy crisis.

NatWest and Lloyds both reported an increase in provisions for bad debts in the third quarter. NatWest recorded pre-tax operating profits up 20 per cent to £1.1bn while Lloyds said profits had dropped 26 per cent to £1.5bn.

Volkswagen, Europe’s biggest carmaker, followed Ford and Volvo in warning that supply chain hold-ups were becoming a permanent problem as it downgraded its delivery targets because of a lack of parts. Another big change in the European autos market is coming in the form of a new wave of electric cars from China.

Science round-up

The world is on track for catastrophe, according to a UN report that said cuts in emissions were not enough to limit global warming to the agreed 1.5C target.

The first analysis on the impact of two massive meteorites that smashed into Mars last year suggest the planet may hold more subsurface ice than scientists thought.

The World Health Organization reported the first global resurgence of drug-resistant tuberculosis in almost 20 years. Some 10.6mn people developed the disease last year and 1.6mn people died.

Austerity and vaccine market failures threaten the fight against pandemics, while polio has returned to the US and infections from animals to humans are on the increase. But monkeypox is retreating and there is new evidence on viruses’ role in Alzheimer’s. Read more in our new special report: Communicable Diseases.

Hong Kong scientists have developed a gut microbiome to reduce the risk of Covid-19 infections. The biome, SIM01, improves gut microbiota balance and boosts immunity.

Stigma over using health services, underfunding and reduced use of condoms are contributing to an alarming rise in sexually transmitted infections, according to a US health agency.

Get the latest worldwide picture with our vaccine tracker

Some good news

Ahead of World Toilet Day next month, an initiative to provide clean water, basic sanitation and hygiene education is raising money by “twinning toilets” around the globe.