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James Hyerczyk

Global equity markets are trading sharply lower early Friday as investors brace for another day of volatility and weakness in reaction to a mixed earnings report from Amazon. The selling started after the U.S. close when Amazon released its results.

Amazon’s third quarter-earnings beat Street estimates, but its revenue and fourth-quarter outlook fell short of expectations, sending the stock down over 10 percent in after-hours trading. The sell-off puts the on-line retail giant on pace for its lowest close since May.

Refinitiv said that Amazon’s EPS came in at $5.75 versus $3.14. Revenue was $56.6 billion versus $57.10 billion estimated. Factset reported that AWS Revenue came in at $6.68 versus $6.71 billion estimated.

Amazon gave fourth-quarter revenue guidance in the range of $66.5 billion and $72.5 billion, well-below consensus of $73.79 billion. The fourth quarter is the biggest and most important sales period for Amazon because of the holidays.

What is spooking investors early Friday is that the results point toward a possible disappointing holiday season in its all-important fourth quarter, as the overall business sees a slight deceleration in growth. At the same time, the numbers highlight the growth of Amazon’s high-margin businesses, like it cloud and advertising units, that are more profitable than its core retail segment.

Amazon said its fourth-quarter operating income guidance of $2.1 billion to $3.6 billion was also below Street expectations of $3.9 billion. Amazon said the wage increase announced earlier this month was incorporated into the guidance, but declined to quantify its impact.

Early U.S. Trade

U.S. futures contracts are pointing towards a sharply lower open in the cash market on Friday.

At 0407 GMT, December E-mini S&P 500 Index futures are trading 2659.00, down 29.25 or -1.08%. December E-mini Dow Jones Industrial Average futures are at 24647, down 230 or -0.92% and the December E-mini NASDAQ-100 Index futures contract is at 6811.00, down 115.50 or -1.67%.

The drop in Dow futures is implying a drop of over 320 points on the cash market opening.


Flight to Safety Buying

Gold prices are edging higher early Friday as another steep break in U.S. stock indexes is encouraging investors to seek safe-haven protection in the gold market. Gold is in a position to post its fourth straight week of gains, its longest string of weekly gains since January.

Stock market investors are also seeking protection in the U.S. Treasury markets which is helping to push down yields. The yield on the 10-year U.S. Treasury Note is coming close to taking out its lowest level since September 28. This is the lowest level it reached before surging to a multi-year high on October 8. Since that date yields have steadily fallen despite rhetoric from the Fed that additional rate hikes are coming.

Flight-to-Safety buying is also driving up demand for the Japanese Yen. At 0421 GMT, the USD/JPY is trading 112.145, down 0.251 or -0.22%. The Forex pair begins the session inside the 111.622 to 112.884 short-term range.

If the stock market sell-off escalates on Friday then sellers could take out the recent bottom at 111.622. This could trigger an even sharper break toward the early September bottom at 110.379.

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