US GDP beats forecasts; Nasdaq futures fall
(Cash-market closing figures are for Wednesday, 28 October, US Eastern Time; futures, European-market and commodity quotes were verified against compliant sources before 21:30 Hong Kong time on 29 October. US stocks had just opened at 21:30 Hong Kong time, so this edition focuses on premarket developments; intraday quotes were not yet available. The ECB press conference is scheduled for 21:45 Hong Kong time, and its remarks are not included in this edition.)
On Wednesday, the S&P 500 rose 0.28% to 7743.98 points, the Dow gained 0.19% to 52475.10 points, the Nasdaq rose 0.27% to 26549.85 points, and the equal-weight S&P ETF (RSP) fell about 0.04% to $217.43 (Reuters) (RSP closing data). In Thursday's premarket, Nasdaq 100 futures fell about 1.19% and S&P 500 futures about 0.38% (Reuters, as reported). The 10-year US Treasury yield was near 5.02% premarket; Brent crude fell about 0.8% to around $114.40 a barrel, and WTI fell about 0.8% to around $101.93 a barrel; spot gold was near $4040 an ounce; and the dollar index was near 102.20 (Reuters, as reported) (Reuters, as reported).
Market focus
At Thursday's open, markets received two pieces of evidence offering little relief: the economy was stronger than expected, inflation was above target, and Alphabet's spending bill was larger than expected. Third-quarter GDP grew at an annualized 3.4%, above expectations of about 3.2%; September PCE rose 3.6% year on year and core PCE rose 3.1%, broadly in line with expectations but still well above the Federal Reserve's 2% target. Reuters reported on that basis that the market-implied probability of a December rate hike remained around 84.6% (Reuters). The data did not overturn the case for a hawkish hold, while earnings are undermining the AI trade: Microsoft showed that cloud can cover the bill, while Alphabet showed that search advertising cannot. Tonight's question has shifted from whether the index will fall to whether the decline in Alphabet alone will spread to software and chips; Amazon and Intel are the next line of defense after the close.
One. Data and central banks: strong GDP, high PCE and low initial jobless claims leave a December rate hike on the table
- The US Commerce Department's Bureau of Economic Analysis reported Thursday that third-quarter real GDP grew at an annualized 3.4%, above the second quarter's 2.2% and market expectations of about 3.2%. The September PCE price index rose 0.5% month on month and 3.6% year on year; core PCE rose 0.3% month on month and 3.1% year on year, all broadly in line with expectations. Personal consumption expenditures rose 0.5% month on month in September, personal income rose 0.2%, and the saving rate fell to 3.8%. Initial jobless claims for the week were 194 thousand, below expectations of about 199 thousand (Reuters) (Reuters, as reported). Growth beat expectations and inflation did not exceed them. The uncomfortable part of this data is that it supports neither a rate cut nor the market treating a December hike as a thing of the past.
- After the Fed voted 10–2 on Wednesday to hold rates at 3.75%–4.00%, Wash's language on inflation was already hawkish. Reuters noted that accelerating inflation in September supported economists' expectations of a December rate hike, with futures pricing the probability at about 84.6% (Reuters). Thursday's data gave Wash no reason to soften his stance: the economy is still accelerating and inflation remains above 3%. The question for the December meeting is not whether to hike, but how much hotter the data must get before a hike.
Two. Europe and the ECB: the rate hold is settled; Lagarde's early departure is Europe's news of the day
- The ECB kept its deposit rate unchanged at 2.50% on Thursday, in line with broad market expectations. It had raised rates by 25 basis points in September; eurozone inflation in September was 3.8%, a three-year high, and the French 10-year government bond yield briefly exceeded 5% last week (Barron's). European markets moved higher first: the pan-European STOXX 600 rose 0.5% during Thursday's session even as Nasdaq futures fell about 1%. Earlier, the STOXX 600 rose 0.11% to 644.80 points, the FTSE 100 gained 0.3%, energy rose 1%, and technology fell 0.7% (Reuters, as reported) (Reuters, as reported). Europe's gains today reflect the hold and earnings, while technology fell alongside Alphabet. The index's resilience comes from energy and individual stocks, not bets on a rate-policy reversal.
- The bigger news came before the decision: the ECB announced that Lagarde would leave early on 7 February 2027, nearly nine months before the scheduled end of her term at the end of October 2027. European Council President Costa said the selection process for her successor began that day; former Dutch central bank governor Knot and former Spanish central bank governor de Cos were seen as leading candidates (Reuters, as reported). The market-implied probability of another ECB hike in December remained around 65% (Reuters, as reported). Lagarde's departure midway through a hiking cycle means that a December hike, if it comes, will be announced by a president in a caretaker period. The French spread issue in European bond markets will not disappear with a change of leadership.
Three. Bonds, the dollar and commodities: oil retreats as hopes of talks offset the reality of attacks; gold holds at $4040, while the dollar trades sideways at 102.2
- Thursday's oil decline tells the opposite half of Wednesday's story: prices rose Wednesday because refineries were attacked, and fell Thursday because talks might resume. Brent fell about 0.8% to $114.40 and WTI about 0.8% to $101.93, against the backdrop of US Vice President Vance writing to Iran seeking to restart talks and Qatari mediators submitting a new draft, which Iran said was unacceptable. Meanwhile, the Houthis continued to attack Saudi facilities (Reuters, as reported). Hopes of talks can push oil down $1, but news of interceptions and attacks determines that they cannot push it down $10. Oil is still trading the spread between the negotiating table and missiles.
- There was no new story in bonds and currencies Thursday, only a continuation of the old one: the 10-year yield was near 5.02%, the dollar index traded sideways near 102.20, spot gold fluctuated near $4040, and EUR/USD was around 1.1131–1.1155 (Reuters, as reported) (Reuters, as reported). With yields and the dollar refusing to fall, gold can only hold above $4000 rather than rise. The GDP and PCE releases did not break that holding level.
Four. Stock and sector moves, including earnings: consumer and pharmaceutical names rise on solid results premarket, while industrial and software names fall after expectations ran too high
- Healthcare and payments were the two strongest areas premarket. Eli Lilly reported third-quarter revenue of $24.4 billion, above the expected $22.61 billion, and adjusted earnings per share of $7.48, above the expected $6.26. Mounjaro sales of $10.72 billion and Zepbound sales of $5.35 billion both beat expectations. The company raised its full-year revenue guidance to $91 billion–$92 billion from $85 billion–$87 billion, but made a slight adjustment to its adjusted EPS guidance, to $35.00–$36.00; its shares rose nearly 5% premarket (Reuters). Merck's adjusted EPS of $2.49 and revenue of $18.1 billion both beat expectations, and its shares rose about 2.4% premarket. Mastercard's adjusted EPS of $5.31 exceeded the expected $5.17, while revenue rose 14% year on year to $9.81 billion; its shares gained about 3.2% premarket (WSJ). Eli Lilly, Merck and Mastercard tell the same story: demand and pricing power remain. The premarket reward is for the numbers themselves, not the story.
- Caterpillar was the clearest premarket example of good earnings and a bad share-price reaction. Third-quarter revenue rose 17% year on year to $20.68 billion, and adjusted EPS of $7.20 exceeded the expected $7.06. But revenue was slightly below the model estimate of $20.76 billion, construction business sales missed expectations, and the company maintained its full-year guidance for mid-to-high double-digit growth. Shares fell about 8.6%–9.7% premarket (WSJ) (Reuters, as reported). Caterpillar's script is identical to Alphabet's: record numbers, yet the stock still falls. The market is no longer rewarding companies simply for earning more; it rewards large beats against expectations.
- M&A and software formed another premarket theme. DoorDash announced it would acquire Instacart for $65 per share, or about $17 billion, a premium of roughly 26% to the 22 October closing price. The deal is expected to close at the end of 2027 or in the first half of 2028; DoorDash rose about 7%–8% premarket (Bloomberg, as reported). Software stocks were broadly under pressure: Fortinet fell about 26% premarket, ServiceNow fell about 19%–20%, and Zscaler and Salesforce also weakened. Marvell fell about 9.4% premarket following reports that it was in talks to buy Lumentum, while Lumentum rose about 4.3% (Reuters, as reported). Today's software decline is about valuations leaving no room for error, not poor results. Fortinet's 27% fall despite raising guidance illustrates the point.
Five. AI news: the criteria for judging Microsoft and Alphabet on the same night are clear—those with profitable cloud businesses rise, while those whose cash flow turns negative amid heavy spending fall; Amazon and Intel are next tonight
- First, a recap of Wednesday's contrasting after-hours results. Microsoft's fiscal 2027 first-quarter revenue of $92.28 billion exceeded the expected $90.69 billion; Azure grew 48% and guided for 49%–50% growth this quarter. Microsoft rose about 2%–3.5% premarket. Alphabet's third-quarter revenue was $127.58 billion, up 25% year on year but below expectations; search advertising revenue of $63.35 billion missed the expected $64.96 billion. Free cash flow was negative $9.1 billion, its capital expenditure plan remained at $195 billion–$205 billion and will rise substantially in 2027, and shares fell about 10.4%–11.4% premarket. If the decline holds, more than $400 billion in market value will be erased (Reuters, as reported) (Reuters, as reported). Microsoft showed that its cloud business has already covered the AI bill. Alphabet was punished because its search cash machine failed to keep up and cash flow turned negative. One night, one AI narrative, two valuations.
- Reuters quoted Jeremy Saltzberg of Check Capital, whose assessment is worth recording: “Investors are starting to look at monetization timelines against the rate of capital spending, and are no longer giving every hyperscaler a free pass to spend without limit” (Reuters, as reported). Chip stocks also weakened premarket: Nvidia fell about 1%, AMD about 3.3%, and Intel about 3.6% (Reuters, as reported). The question for Amazon and Intel after tonight's close is exactly the same as last night's: not whether AI demand exists, but how long it will take for the money spent to become free cash flow.
Six. Forward calendar (Hong Kong time)
- 29 October (Thursday), 21:45: ECB President Lagarde's press conference; Amazon and Intel report earnings after the close.
- 30 October (Friday): Bank of Japan decision (markets expect it to hold at 1.25%); 20:30 employment cost index (market expectation: 0.8% quarter on quarter); Exxon Mobil and Chevron report premarket.
- 3 November (Tuesday): US midterm elections; 5 November (Thursday): French unions' general strike; 16 November (Monday): Wash attends the Federal Reserve task force on productivity and employment's San Francisco Bay Area hearing.