Crypto confidence tested after Binance hit by record-breaking hack | Morning Bid

Today, investors are spooked as Intel and Amazon burn through cash. And analysts say it's the biggest crypto hack ever. Binance has been forced to freeze assets after hackers stole $6.3 billion. While the Bank of Japan declares victory on prices and there's a changing of the guard at the ECB. This is Reuters Morning Beat, bringing you unfiltered market news and analysis straight from the Reuters newsroom. I'm Peter Devlin in London. And I'm Elena Kassas. It's Friday, October 30th. Well, Peter, it's Halloween weekend and investors have taken fright. Amazon Web Services is the largest cloud provider in the world. It's a cash cow, and revenue there was up 39%. But it's not enough to pay for Amazon's vast spending on data centers. It announced more than $77 billion of capex just in this quarter. That's way ahead of rivals, including Alphabet and Microsoft, and it burned through $42.4 billion in cash. Now, the market has been supporting vast spending on the build-out of data centers for months, but has investors' patience running out? Well, I think what we've seen in these moves from earnings after Amazon and Alphabet is just a microcosm of what we've seen broadly in October, where in terms of concerns of AI spending, it's hitting tech stocks and communication services. And just the broader message is that investors are sick of promises on AI. They want to see real returns. And as these earnings come through, that message is just getting louder and louder. Well, we saw an extraordinary drop in Alphabet's share price in Thursday's trading, didn't it? Its market cap lost $500 billion. That makes it not only the worst day in Alphabet's history, but the second biggest drop in any company on the Nasdaq ever. And Google was forced to admit that the AI business is cannibalizing its existing share business and the ads in search. So are investors starting to look into these numbers in a bit more detail now, especially when we look at the scale of the cash that's been being burnt through? Let's just look at Amazon's earnings last night, and maybe it came at a bit of a jittery time for markets. You know, some people say that that sort of drop in its retail unit is due to Amazon moving its pride day back earlier to June previously than in July. But again, as we talked about earlier, the cloud sales unit, its growth undershot overblown expectations, and it can't keep up with that competitive bar set by Google and Microsoft. But I mean, if you look at the operating margin, there was some improvement there, and that should be a level of confidence. isn't enough to keep up with these concerns about this more and more spending. Intel also made markets nervous last night. Those shares dropped 23% after hours after that company also reported a massive cash burn. But another sector of the market that has investors on edge today is crypto. After Binance had to freeze billions of dollars in assets, after hackers linked to North Korea stole 6.3 billion. Now, this comes at a difficult time for crypto, doesn't it? Well, you feel bad for those crypto faithfuls, especially over the past two months, they've seen a bit of a basking of the sunshine, a price rebound. But I mean, Binance, they've said that they will refund all losses and that user funds are safe. But I mean, Binance is such a behemoth in the crypto industry. So any hit of confidence there is a big hit to the confidence of the entire sector. And we know before that crypto just doesn't need any more bad PR. Well, we saw an immediate reaction in Asian trading. Bitcoin was down 3%. But as you say, crypto had a bad year overall. Exchange-traded funds are buying less of it. Legislation that was expected in the US that should have been more crypto-friendly just hasn't manifested. And higher US interest rates also aren't very favourable to crypto. So, The main selling point of crypto has always been that if you put your money there, it will be safe, potentially safer than if you put it in a bank. Now, if exchanges can't guarantee that, given that AI is making it easier and easier for hackers to find vulnerabilities faster than servers are able to patch them, then the whole use case for crypto is in question, isn't it? Well, I think there's two sides to the argument you could take here, if Bitcoin is going to negatively impact from this news or not. I mean, take one side. Again, these attackers are moving at such an unprecedented speed and pace. But I mean, the operators and tools used to track and trace these investigations are moving at the same pace as well. They can freeze the crypto issuance within hours after this news broke as well. They can follow along the blockchain. But then on the other side, Let's not forget it's the midterms next week. And as this news sort of picks up pace and more and more readers get it, especially as U.S. markets wake up, with the expectations that the Democrats may take one or both chambers of Congress, that's going to increase the regulatory scrutiny. Well, we also heard from the Bank of Japan overnight. They held rates steady as was expected, but they've declared victory over prices after nearly three decades of fighting against price growth being too low. They now say that inflation is around target, don't they? That's such a big milestone as well. If you think this came back in 2013, when the Bank of Japan revealed its massive stimulus program, they said it would take two years to reach this target. So this is a long time coming. So now their job shifts instead of trying to coax prices to rise in order to make sure that they don't overshoot. And that paves the way for Hike in December. We've also seen a changing of the guard at the central bank here in Europe. It wasn't a huge surprise for the market, but ECB President Christine Lagarde announced her resignation on Thursday. She'll be out by February. Of course, that means the next governor will be chosen before the crucial French presidential election in the spring. But it is a difficult time for the ECB, isn't it? Well, keeping on hold as expected yesterday, pointing maybe to December hike coming up. But I mean, we spoke to analysts a lot about this yesterday, if this is a change in the guard or a new chapter for the ECB. And really, they don't see changes coming through with a new leadership. We know the two candidates, Hernando Pablo de Cos, as well as Class Not, both credible and well-known policymakers. So largely, analysts we spoke to said this isn't going to change the picture for expectations for policy for the ECB. One economist I spoke to yesterday, though, said the ECB might be looking for a candidate with crisis experience as political uncertainty in France grows ahead of that crucial election. Well, for today's Recommended Read, check out Andy Holmes' column on why lead might be worth a closer look, despite high stocks and low prices. That link is in the show notes. And for more of any of today's stories, head to Reuters.com or the Reuters app. Follow us on your favourite podcast player. And if you're on a smart speaker, just ask for the latest market news from Reuters. And we'll be back on Monday.