Week Ahead: Meta & Tesla kick off Magnificent 7 earnings, UK inflation data & global PMIs

After the tech-heavy Nasdaq fell 5.5% last week, confidence in the AI trade is likely to be tested in the coming weeks as Wall Street's attention turns to quarterly results from mega-cap technology firms such as Meta Platforms.

AI-linked stocks, which have been central to the bull market, struggled last week. The Philadelphia Semiconductor Index slumped 12%, while South Korea's KOSPI plunged 16%. Concerns over slowing revenue growth at Anthropic, alongside mounting worries over the huge sums being invested in AI infrastructure, chips and data centres, have raised questions about profitability. Higher-than-expected inflation last week added to those concerns.

Against this backdrop, attention will turn to the US as the earnings season continues. Meta, Tesla and Netflix are reporting this week. The first Magnificent Seven earnings reports will provide some indication of whether strong technology earnings can halt the sell-off in AI stocks.

Meta Q3 earnings

Meta is due to report Q3 earnings after the market closes on Wednesday, 21 October, with markets looking for signs that its huge investments in AI will drive profitability.

EPS is expected to fall 15.7% to $6.11 per share, while revenue is expected to rise 23% to $63.3 billion. Capital expenditure is projected to rise sharply, with the company's full-year guidance at $130 billion to $145 billion.

The market will look for stronger advertising revenue growth and signs that the business is profiting from its AI investment. Better ad targeting and campaign performance could help Meta generate more revenue from its existing user base, making it easier to justify the rising cost of AI infrastructure.

Meta's share price fell sharply after its Q2 earnings amid concerns over the costs of its AI ambitions. However, the share price has since recovered following the success of the Muse AI app, which attracted record-breaking downloads, adding to the potential for AI to become a meaningful growth driver.

Meta's share price broke out of a descending channel in mid-September, jumping towards $780. The price has since eased back to around $700. Strong results could see the price move towards $790 and fresh record highs. However, any concerns over heavy capital expenditure could see the price test support at $680, with $760 also worth watching as an intermediate level.

Should the market become more concerned about the scale of capital expenditure, this could weigh not only on the AI trade but also on broader equity indices such as the Nasdaq 100.

UK data releases

The UK will release several key economic indicators this week ahead of the Bank of England meeting on 5 November. The meeting will follow the government's Budget announcement on 20 October, leaving investors to assess the implications for inflation, growth and monetary policy.

This week’s data releases include UK unemployment figures on Tuesday, inflation data on Wednesday and retail sales on Friday.

Higher-than-expected readings, particularly for inflation and wage growth, could strengthen market expectations of a rate hike in November and help GBP/USD extend its recovery above 1.3350. However, any signs of easing inflationary pressures, particularly in core CPI, or labour market weakness could cast doubt on the likelihood of a hike, for which markets are pricing in a 93% probability, potentially pulling GBP/USD lower towards the 1.32 support zone.

Global PMIs

Global PMI data will be released on Friday and could provide an indication of how activity in the services and manufacturing sectors is holding up.

Given that the US economic calendar is relatively quiet, this could be one of the main macroeconomic releases for investors to assess this week.

Recent US data has pointed to higher-than-expected inflation and a resilient economy, complicating the outlook for the Federal Reserve.

A back-to-back rate hike by the Fed this month is considered unlikely, with markets pricing in a relatively low probability of a 25-basis-point hike on 28 October. However, a hike remains a possibility for December, with investors continuing to assess how persistent inflation will influence the path of monetary policy.

Strong PMI data could lend further support to the view that the Fed will hike rates before the end of the year.