Meta Stocks Plummet as Extended AI Investment Plans Rattle Investors

Stocks

Economic

Summary:

Shares of Meta Platforms (META.O) plummeted by 14% in premarket trading on Thursday following concerns among investors sparked by the company's statements regarding extended spending on artificial intelligence.

Shares of Meta Platforms plunged by 14% in premarket trading on Thursday, following the social media firm's announcement regarding prolonged spending on artificial intelligence (AI), unsettling investors. The company's cautious outlook on expenses and revenue on Wednesday triggered a 15% decline in its shares during after-market trading, wiping out nearly $200 billion from its market valuation, which stood at about $1 trillion. Shares of Alphabet and Snap also experienced declines ranging between 2% and 5%.

Meta revised its expense forecast for the year to a range of $96 billion-$99 billion from the previous range of $94 billion-$99 billion, highlighting its commitment to investing in new AI products and the necessary computing infrastructure to support them. The company anticipates continued increases in spending next year, reflecting its long-term strategic vision.

Despite the significant investor sell-off, analysts offered mixed perspectives on Meta's extended spending plans. Some analysts, such as those from Morgan Stanley, viewed the increased investment positively, citing the potential for durable engagement and revenue growth. Others, like those at Baird, emphasized the importance of investment cycles in sustaining growth through innovation, cautioning against prioritizing short-term financial outcomes over long-term opportunities presented by technological advancements.

Meta's intensified focus on AI reflects its efforts to remain competitive in the evolving digital landscape, particularly in the realm of generative AI. The company has been enhancing its ad-buying products with AI tools and introducing new AI features, such as chat assistants and short video formats, aimed at driving revenue growth and enhancing user engagement.

CEO Mark Zuckerberg acknowledged the impact of increased spending on Meta's investment envelope during a conference call with analysts, emphasizing the importance of AI in driving future revenue growth. However, his comments tempered expectations for immediate returns from AI investments, signaling a shift from the company's previous reliance on ad revenue.

Analysts highlighted the transformative potential of AI in boosting engagement and utility for Meta's platforms. However, skepticism remains among some investors regarding the company's ability to deliver substantial growth driven by AI initiatives in the near term, particularly in light of the recent downturn in share prices.

Despite the market volatility and uncertainty surrounding Meta's AI investments, the company has experienced significant gains in its stock price this year, outperforming the broader market. As Meta continues to navigate the evolving digital landscape and invest in AI-driven innovation, its ability to deliver sustained growth will be closely scrutinized by investors.

Meta's strategic shift towards increased spending on AI reflects its commitment to driving innovation and remaining competitive in the digital landscape. While some analysts view the move positively, others remain cautious about the short-term financial implications. As Meta continues to invest in AI-driven initiatives, its ability to deliver tangible results and maintain investor confidence will be key factors shaping its future trajectory in the market.

Source: Reuters

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Ukadike Micheal

Economic

Stocks

European stocks encountered a downward trajectory at the opening bell, predominantly driven by substantial declines witnessed in the technology sector, spurred by the underwhelming first-quarter performance of Meta. Investors' concerns regarding Mark Zuckerberg's ability to effectively manage costs within the company resurfaced, casting a shadow over market sentiment. Consequently, the Stoxx Europe 600 index experienced a decline of 0.4%, mirroring similar downturns in Germany's Dax and France's Cac 40, which both dropped by 0.4% and 0.1%, respectively. Conversely, London's FTSE 100 defied the prevailing trend, registering a 0.6% increase, propelled by a notable surge in Anglo American shares amid ongoing takeover speculation.

Turning to Wall Street, pre-market indicators pointed towards a potential downturn, particularly within the technology sector. Contracts associated with the S&P 500 and Nasdaq Composite suggested impending declines of 0.7% and 1.3%, respectively, setting a cautious tone ahead of the New York trading session.

Additionally, Nasdaq 100 contracts experienced a significant decline of 1.2%, with Meta's disappointing earnings report accounting for approximately half of this downturn. The company's projections for second-quarter sales fell below analyst expectations, while increased spending estimates for the year further exacerbated investor concerns. As a result, Meta's shares plummeted by as much as 19% during after-hours trading. The negative sentiment extended to other tech giants, including Alphabet Inc., contributing to a decline in S&P 500 futures by 0.6%.

Across the pond in Europe, the Stoxx 600 Index retreated as market participants digested a flurry of corporate updates amid the busiest day of the earnings season. Notably, Anglo American Plc witnessed a remarkable surge of 13% following reports of an all-share takeover proposal from rival mining behemoth BHP Group, valuing the former at £31.1 billion ($38.8 billion).

Looking ahead, traders remain keenly attuned to forthcoming US economic growth figures, which are poised to provide valuable insights into the trajectory of Federal Reserve interest-rate adjustments. Economists anticipate that GDP likely moderated to approximately 2.5% in the first quarter, with the data potentially shedding light on persistent inflationary pressures and shaping future monetary policy decisions.

The day's market movements underscore the profound influence of corporate earnings releases and economic indicators on investor sentiment. While technology stocks faced significant headwinds following Meta's disappointing results, optimism surrounding potential merger and acquisition activities lent some support to European markets. As traders await crucial economic data releases, including US GDP figures, market participants are urged to adopt cautious and informed investment strategies in navigating the dynamic landscape of global financial markets.

Source: Financial Times

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Warren Takunda

Stocks

Central Bank

Economic

Asian stocks fell on Thursday as disappointing earnings forecasts from Facebook parent Meta Platforms hammered tech shares, while the yen's slump past 155 per dollar for the first time since 1990 raised the spectre of intervention from Tokyo.

A 15% dive in shares of Meta,in extended trading after the Instagram parent forecast lighter-than-expected current quarter revenue and higher expenses soured the mood, sparking a sell-off in U.S. tech and tech-related stocks.

The hit to Asian tech stocks,took MSCI's broadest index of Asia-Pacific shares outside Japan , down 0.5%. Japan's Nikkei, slid 2%.

The listless mood is set to continue in Europe, with Eurostoxx 50 futures down 0.12%, German DAX futures down 0.14% and FTSE futures 0.06% lower.

In an earnings-packed week, tech bellwethers are in the spotlight, with Alphabet ,Microsoft , and Intel ,due to report on Thursday.

"If Meta is a guide, it seems the market is simply not tolerant of in-line – if you've had a good run through Q1 & Q2 you either blow the lights out, or the market takes its pound of flesh," said Chris Weston, head of research at Pepperstone.

European earnings is also under way, with banking firms Deutsche Bank , BNP Paribas SA ,Barclays PLC,due to report on Thursday.

Tech stocks had gotten a boost on Wednesday after Tesla , said it would introduce "new models" by early 2025 using its current platforms and production lines.

Beyond corporate earnings, investor focus will be on the first quarter U.S. gross domestic product data on Thursday and personal consumption expenditures, the Fed's preferred inflation gauge, for March on Friday.

A hotter-than-expected consumer price inflation report for March pushed back expectations of when the Fed will begin cutting interest rates, with markets pricing in a 70% chance of the first cut coming in September, CME FedWatch Tool showed.

Traders are pricing in 43 basis points of easing in 2024, drastically less than the 150 basis points they anticipated at the start of this year.

The shifting expectations of U.S. rates have lifted Treasury yields and the dollar, casting a shadow on the currency market. Against a basket of currencies, the dollar was little changed at 105.75. The index is up over 4% this year.

The yen , which is sensitive to U.S. Treasury yields, has felt the brunt of the dollar's ascent and is down 9% this year, the worst performing G-10 currency.

On Thursday, the yen was fetching 155.65 per dollar after touching 155.675, its weakest in 34 years during the session, past the 155 yen level that some traders had marked out as a line in the sand that would prompt Tokyo to take action.

The Bank of Japan (BOJ) started its two-day rate-setting meeting on Thursday, with expectations that the central bank will keep its short-term interest rate target unchanged.

Attention will be on BOJ Governor Kazuo Ueda's comments on Friday as he tries to maintain a calibrated path to exiting ultra-easy rates without upending the currency.

The BOJ chief will be mindful of avoiding the episode of 2022, when his predecessor's dovish remarks triggered a yen plunge that forced Tokyo to intervene, selling an estimated $60 billion to defend the yen.

"At this stage, if they were to intervene, they might as well just throw their money into the sea," said Rob Carnell, head of Asia-Pacific research at ING. "For all the good it will do except in the very short run."

Kieran Williams, head of Asia FX at InTouch Capital Markets, said the dollar/yen pair looks to be trading roughly in line with relative interest-rate spreads, suggesting Japan's Ministry of Finance would be fighting strong headwinds.

The nation's ruling party is not yet in active discussion on what yen levels would be deemed worth intervening in the market, though the currency's slide towards 160 to the dollar could prod policymakers to act, party executive Takao Ochi told Reuters.

U.S. crude rose 0.1% to $82.89 per barrel and Brent was at $88.13, up 0.12% on the day. Spot gold dropped 0.1% to $2,314.45 an ounce.

Source: Reuters

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Ukadike Micheal

Economic

Commodity

Oil prices experienced a modest decline, despite a notable drawdown in US stockpiles. Brent crude hovered around $88 a barrel, while West Texas Intermediate remained close to $83. The drop in prices occurred even as data revealed a substantial 6.37 million barrel decrease in nationwide crude inventories, driven by increased refinery activity and higher exports.

Amidst a risk-off sentiment in broader markets, Asian equities retreated, influenced by concerns surrounding the US tech sector. The Federal Reserve's upcoming inflation gauge is anticipated to offer insights into future monetary policy decisions. Despite geopolitical tensions in the Middle East and supply constraints imposed by OPEC+, oil prices have slightly receded from recent peaks above $90 a barrel as risks in the region have alleviated.

Options skew towards a bearish bias, indicating a preference for puts, while the US Oil Fund recorded its largest daily outflow on record. The market sentiment suggests a shift towards a more cautious risk environment, potentially influencing oil prices going forward.

The outlook for oil demand remains uncertain, particularly due to weaknesses in certain refined products like diesel. Profit margins for diesel production in Asia have dwindled to nearly a year-low, reflecting challenges in the refining sector.

From a technical standpoint, the recent dynamics in the oil market underscore the complex interplay between geopolitical factors, supply-demand dynamics, and market sentiment. The drawdown in US stockpiles, while significant, needs to be viewed in conjunction with broader market trends and geopolitical developments to gauge its lasting impact on oil prices.

The drawdown in US stockpiles is a significant development as it indicates a potential rebalancing of supply and demand dynamics in the oil market. The decline in inventories suggests that refineries are operating at higher capacities, possibly in response to increased demand or favorable market conditions. This drawdown could have a positive impact on oil prices in the short term, as reduced inventories often lead to upward pressure on prices.

The risk-off sentiment in broader markets, particularly in Asian equities, reflects concerns about the stability of the global economy and the impact of geopolitical events on financial markets. The tech sector, in particular, has been under scrutiny, with disappointing outlooks from major companies contributing to market jitters. These broader market trends can influence investor sentiment towards oil and other commodities, as risk aversion tends to drive capital towards safe-haven assets.

The upcoming release of the Federal Reserve's preferred inflation gauge will be closely watched by market participants for clues about the central bank's future monetary policy decisions. Inflation is a key factor that can influence interest rates and, consequently, the cost of borrowing and investment decisions. Any signals from the Fed regarding its stance on inflation could have implications for the broader financial markets, including the oil sector.

The bearish tilt towards puts in options trading suggests that investors are hedging against potential downside risks in oil prices. This cautious approach reflects the uncertainty surrounding the future direction of oil prices, given the complex interplay of supply, demand, and geopolitical factors. The outflow from the US Oil Fund, a significant oil exchange-traded fund, indicates a shift in investor sentiment towards the commodity, potentially signaling a broader trend in the market.

The challenges in the refining sector, particularly the low profit margins for diesel production in Asia, highlight the ongoing pressures faced by oil industry players. Weaknesses in refined products can impact the overall profitability of oil companies and influence their investment decisions. The refining sector plays a crucial role in the oil supply chain, and any disruptions or challenges in this segment can have ripple effects throughout the industry.

While the oil market continues to navigate through various challenges and uncertainties, the overall trend remains cautiously optimistic. The evolving landscape of supply, demand, and market sentiment will continue to shape the trajectory of oil prices in the coming days, highlighting the need for a nuanced understanding of the interconnected factors influencing this crucial commodity market.

Source: Bloomberg

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Owen Li

Commodity

BHP Group's proposed $39 billion buyout of Anglo American is a big bet on copper that could spark a scramble for mining assets as a bullish demand outlook and tight supply for a mineral crucial to the energy transition sends prices to multi-year highs.

Combined, the companies would churn out 10% of global output of the red metal, cementing diversified miner BHP's position as the top producer ahead of copper-focused Codelco and Freeport-McMoRan.

Thanks to its high conductivity and extreme resistance to corrosion, the metal is used in everything from cars, power grids to building construction.

"The energy transition is only just getting started, and if electricity is the lifeblood of this revolution, copper is the veins and arteries," said Peter Arkell, chairman of the Global Mining Association of China (GMAC).

"There is no way that existing mines can meet the anticipated demand, therefore the major mining companies recognise that copper needs to be a fundamental part of their portfolio," he told Reuters.

Global refined copper consumption grew 6.7% in 2023 to 27.63 million metric tons, World Bureau of Metal Statistics data showed.

Global refined copper demand will rise at a compound annual growth rate of 2.3% from now through 2028, according to London-based commodity research firm CRU.

That robust demand outlook is coupled with unexpectedly tight supply of copper concentrate this year, fuelled by the December closure of First Quantum Minerals' massive Cobre Panama mine.

Also in December, Anglo American cut its copper production guidance by up to 210,000 tons for 2024 and as much as 180,000 tons for 2025, citing lower grades and ore hardness at the Los Bronces mine in Chile, pushing analysts to revise their market balance forecasts.

CRU predicts a shortage of 194,000 tons for global copper concentrate and a shortage of 149,000 tons for refined copper this year, and analysts have said they expect the concentrate deficit to widen over the next three years.

Goldman Sachs is even more bullish, with the investment bank's analysts forecasting a shortage of 428,000 tons of refined copper in 2024 in a note on Thursday that also predicted prices would hit $12,000 per ton over the coming year.

That would be another 23% rise from current levels on the London Metal Exchange (LME), where the price has rallied on strong longer-term market fundamentals and speculative trading.

The LME's benchmark three-month copper contract hit a two-year high of $9,988 per metric ton on Monday, up 15% so far this year, while the most-traded contract on the Shanghai Futures Exchange hit a record 81,050 yuan ($11,184.25) a ton on Monday, up 18% year-to-date.

More deals?

Craig Lang, an analyst at CRU, said some miners are struggling to maintain production levels as mines age, which would encourage them to acquire other assets. Smelters are also likely buy stakes in mines in order to secure offtake, he added.

BHP said in a statement on Thursday that purchasing Anglo would give it value-adding copper growth options.

"BHP has talked about getting more copper for a long time," said Hayden Bairstow, head of research at Australian broker Argonaut. "Anglo's got plans to go to a million tonnes per year in the next 10 years."

Miners and smelters in China, the world's top refined copper producer as well as the biggest importer of raw materials, have also been looking for mining assets to secure supply.

China's Zijin Mining, which produced more than 1 million tons of mined copper in 2023, ranking sixth globally, last year joined with South Africa's Sibanye Stillwater in an attempt to buy Zambia's Mopani Copper Mines, but lost out to a unit of the United Arab Emirates' International Holdings Company.

China's CMOC Group said in February that it could buy more assets in the copper and cobalt-rich Democratic Republic of Congo, and sees further potential for growth in South America and Indonesia.

China Copper, owned by state-run Aluminum Corp of China (Chalco), said in March it was looking for tie-ups globally to acquire assets.

GMAC's Arkell said the long-term planning and investment needed for mining means producers needed to both explore and buy.

"As the major mining companies search for the next significant deposit, they must look to acquisitions to remain a major producer meeting near term demand," he said.

($1 = 7.2468 yuan)

Source: Reuters

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Swissquote

Economic

Stocks

Forex

Meta revealed better than expected earnings, a more-than-doubled profit from last year and a 27% rise in sales. Oh, and the revenue growth was up for the fifth quarter. But the share price tumbled 15% in the afterhours trading as investors didn't like the weaker-than-expected revenue forecast for the current quarter and even less the news that the company will be spending more money to improve its AI capabilities.

Meta is now expected to spend around $35 to 40 billion, versus $30-37 billion they said they would spend earlier. In fine, these investments will help the company keep more people longer on their platform and increase their ad revenue with a more intelligent and customized advertisement strategy, but additional spending news comes at a time investors were expecting Meta to start throwing magnificent results into the mix. And all we got is a lower revenue outlook and more spending. Price-wise, Meta will likely slip below its uptrending range building since end of 2022; it's certainly not the end of the AI hype for Meta, but it's sure a short-term disappointment.

Google, Microsoft and Intel are due to report today.

So far, we observe that the high expectations have played tricks on stock valuations and the first set of earnings reactions warn that even strong results from Big Tech may not suffice to send their stock prices higher – if we start seeing growth expectations level out. (I am looking at you Microsoft and Nvidia.)

Zooming out, the stumbling giant Meta is weighing on the mood this morning. US futures are down and the technology-heavy Nasdaq is leading losses with more than 1% fall at the time of writing.

The macroeconomic landscape is complex, with investors balancing between robust GDP growth and high earnings expectations for the Big Tech companies, all while considering the fading expectations for a Federal Reserve's (Fed) rate cut. A strong GDP reading would suggest that the US economy is sufficiently strong to support corporate earnings, but it could also delay expectations for a Fed rate cut.

Conversely, a softer-than-expected GDP figure would likely increase expectations for a rate cut, especially if earnings disappoint due to inflated expectations. Overall, I believe that a softer-than-expected GDP would elicit a more positive market reaction, but the risks surrounding GDP lean towards a better-than-expected reading. According to a consensus of analyst estimates on Bloomberg, Q1 growth is expected to be around 2.5%, while the Atlanta Fed's GDPNow projection stands at approximately 2.7%.

The US dollar index rebounded yesterday after trading near a two-week low. The EURUSD remained bid into the 1.0680 support, fueled by better than expected German sentiment data – which showed that business sentiment rose to the highest level in a year. But a set of rating assessments are expected to challenge the rising debt risks in France and Italy, and could limit the upside potential along with a potentially stronger US dollar dependent on today's first glimpse at the Q1 growth.

The dollar appreciation is a problem for many economies, but it has become a major headache for the Bank of Japan (BoJ). The USDJPY spiked and extended gains above the 155 mark. The BoJ will lean on to the USD strength at this week's policy meeting and will – potentially – intervene to slow the yen selloff. What's interesting is that we know that next hours will likely bring an announcement to tackle the yen depreciation, but the yen shorts are not afraid. They know that an FX intervention alone won't reverse the yen's falling course unless accompanied by a hawkish BoJ policy outlook. Therefore, even an intervention could backfire and fail to prevent a further rise in USDJPY to the 160 level.

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Ukadike Micheal

Economic

Forex

On Thursday, the yen plummeted to its lowest levels in 34 years against the dollar and 16 years against the euro, driven by investor anticipation of the Bank of Japan's policy meeting outcome. The dollar surged to a 34-year high of 155.74 yen, breaching a significant psychological threshold, while the euro reached a 16-year peak of 166.98 yen. Market participants view the breach of the 155 yen level as a potential trigger for Tokyo authorities to intervene, though the efficacy of such measures remains uncertain given prevailing market sentiment.

Speculation regarding potential intervention by Japanese authorities has intensified, particularly as the yen's depreciation continues unabated. Concerns persist that even intervention may not suffice to stem the yen's decline, with some analysts suggesting a possible ascent to 160 yen against the dollar. BOJ Governor Kazuo Ueda is expected to exercise caution, mindful of previous instances where dovish remarks led to substantial yen depreciation, necessitating intervention to stabilize the currency.

The prospect of prolonged low interest rates in Japan, coupled with expectations for delayed rate cuts in the United States, has further weighed on the yen. Despite expectations for a marginally hawkish outcome from the BOJ meeting, the prevailing economic environment suggests limited scope for significant yen appreciation. Policy tightening expectations and a persistently low terminal policy rate underscore the challenges facing the yen, which remains at historically depressed levels.

Meanwhile, the dollar experienced some losses against other currencies following upbeat economic data from the eurozone and the UK earlier in the week. The euro and sterling strengthened in response to positive business activity indicators, exerting downward pressure on the dollar. Despite this, the dollar index, a measure of its value against a basket of currencies, remains relatively steady, albeit pulling away from recent lows.

Investors are closely monitoring upcoming U.S. economic data, particularly the first quarter core gross domestic product (GDP) price deflator. This data point is seen as pivotal in providing insights into Friday's release of the Personal Consumption Expenditure (PCE) price index, which serves as the Federal Reserve's preferred inflation gauge. Any surprises in these figures could potentially influence market sentiment and impact currency valuations.

In Asia, trading activity was subdued, with Australian markets closed for a holiday. The Australian dollar edged higher, buoyed by diminished expectations of rate cuts by the Reserve Bank of Australia following a softer-than-expected consumer price inflation reading for the first quarter. Similarly, the New Zealand dollar advanced, supported by positive market sentiment.

The yen's decline to multi-year lows against major currencies reflects ongoing market expectations regarding the Bank of Japan's policy stance and broader economic conditions. Despite potential intervention by Japanese authorities, the yen's trajectory remains uncertain amid prevailing global economic trends and central bank policies. Market participants are closely monitoring upcoming economic data releases for further insights into currency market dynamics and potential trading opportunities.