European stocks mixed ahead of earnings & BoE statement

Investors showed mixed sentiment this morning on a day that promises much in the way of earnings and central bank announcements.

At the time of writing, the FTSE 100 had retreated by over seven points. The DAX and CAC were performing much better, adding 17.8 and 22.38 points respectively. From a pan-European perspective, the Stoxx 50 was trading 17.00 upwards.

Many UK investors are essentially waiting for today’s Bank of England statements. Governor Bailey is due to outline the central bank’s monetary policy at midday today. Inflation is expected to be the day’s running theme.

Inflation has so far overshot established target levels for two consecutive months. The Bank’s response will be critical today. So far, there are two schools of thought predicting what the BoE might do. On one side, economists broadly think Bailey will up inflation targets. Investors, on the other hand, believe that the Bank will stick to a dovish tack, leaving its interest and QE stance unchanged.

UK CPI was up 0.5% in June on a month-by-month basis. This was way ahead of estimates and the fastest CPI growth rate reported since May 2018.

It’s likely the Bank of England is still feeling cautiously optimistic. It has predicted that inflation will peak at 3% in 2021 before falling away next year. The BoE says it has yet to see any evidence that the current acceleration in CPI is anything but transitionary.

Despite the surge in Delta variant COVID-19 cases across the last month, UK infection rates have broadly trended down throughout July and August. That gives some hope that the country will be able to return to full normality quicker than other economies. Pretty much all restrictions have been removed.

Ahead of today’s BoE announcement, GBP/USD had recaptured the 1.390 level. At the time of writing, cable had reached 1.394 and was up 0.19% on the day. Its future course will be decided later when we get more info on the Bank of England’s QE bond-buying stance.

EUR/USD had stayed mostly flat at 1.1837.

In terms of earnings, European large caps reporting today include Siemens, Adidas, Merck, Bayer, Intesa Sanpaolo and WPP.

Looking to US markets, the Nasdaq was showing positive movements, trending up nearly 20 points. The Dow Jones and S&P 500, however, were down pre-market, with the Dow sliding 0.9%. The S&P 500’s downward trend was in the 0.5% region at the time of writing.

On Wall Street, large caps reporting include Square and Virgin Galactic. You can find a rundown of the companies sharing earnings today with our US earnings season calendar.

Earnings season: A mixed quarter for Alibaba

Alibaba misses earnings estimates but the Chinese eCommerce giant has plans afoot to restore investor confidence after reporting fairly disappointing quarterly results.

Alibaba earnings

For the first time in two years, Alibaba earnings fell below market estimates. The headline is that the Chinese government’s ongoing crackdown on the internet sector has taken its toll on the eCommerce firm. There is still more at play here though.

In its latest quarterly report, Alibaba reported revenues of 205.75 billion yuan ($31.83bn). That’s a 34% increase year-on-year, but still came up shy of the 209bn yuan forecast by market analysts.

Subsequently, net profits slid 8% compared with the previous quarter.

Alibaba also reported 45.1 billion yuan in net income, or about $7 billion, slipped from 47.6 billion yuan

The company swallowed an 18 billion yuan ($2.8bn) antitrust fine earlier this year. Alibaba, like rival Tencent, has recently come under intense scrutiny from Chinese authorities. They believe the pair, which have so far reused to work together, are essentially establishing monopolies in their respective spheres – hence the major fine levelled by the CCP.

But the drop in revenue also comes from investment in an effort to enhance and expand Alibaba’s offer.

“We are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets,” said Group Chief Financial Officer Maggie Wu in a statement.

However, it goes without saying the fines and shifting regulatory environment in China has caused consternation for Alibaba’s executive team.

“We are in the process of studying the regulatory requirements, evaluating the potential impact on our relevant businesses,” Daniel Zhang, Alibaba’s chairman and chief executive, told analysts on Tuesday. “We will respond with action.”

To reassure investors, Alibaba has revealed it plans to increase its shares buyback plan to $15bn from its current $10bn level.

Alibaba’s investment plan

According to Zhang, Alibaba plans on reinvesting incremental profits into numerous business areas. This includes more cash towards its technology development and ventures, as well as user acquisition, infrastructure, and methods to lower its merchant partners’ operating costs.

For example, instead of funnelling more users through flagship app Taoboa, the eCommerce firm said it plans to take a multi-app approach to grow new business. Alibaba said this would help it reach customers in rural China as well as lower-tier cities outside of the mega metropolises up and down the country.

“We are working on building a more complete app matrix to better serve the different needs of different consumers,” Zhang said.

The newly-launched Taoboa Deals app, built around budget eCommerce for customers with tighter budgets, is a good example of this. Since going live, Taoboa Deals has accrued over 190 million annual active users in just 16 months.

“When we plan our incremental investment, we always focus on value creation,” Zhang said. “We think that for other companies who are continuously loss-making but still try to enlarge their scale by subsidies, at the end of the day, they have to let the market see the real results.”

What does the market think?

Alibaba shares have been sliding in recent weeks as part of the broader fall in Chinese tech stocks. At the time of writing, however, shares were back in the green, tracking 2% upwards.

Market consensus is still positive about Alibaba shares, as per the sentiment tracker on the Markets.com trading platform:

Alibaba market sentiment

The analyst recommendations tool puts Alibaba as a strong buy:

Alibaba analyst recommendations.

But all depends on how successful Alibaba’s investment plans are – and how successfully the company can navigate a changing regulatory landscape.

To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.

European stocks to open higher on rebounding risk sentiment

Key European indices are set to open August positively as risk sentiment lightens after last week’s poor close for the markets.

The FTSE100 starts on the front foot, tracking over 70 points higher this morning. The DAX jumps up 112.27 points, while the CAC40 is up by 55.08.

It’s good to see the markets in a broadly confident mood this morning. Asian equities, which performed stolidly last week following a spate of new Chinese regulatory crackdowns, also begin August with strong positive movements. The Hong Kong Hang Seng, for instance, has taken big strides to reach 26,195 at the time of writing – up 270.

Elsewhere, a number of confident earnings reports from global large caps is helping power positive stock market sentiment.

HSBC, for example, reported at the start of Asian trading it had grown profits fourfold this quarter, reaching $5.1bn. Europe’s largest lender’s H1 profits are up 150% year-on-year, totalling $10.8bn. Total revenues, however, are down from $13.1bn in Q1 to $12.6bn. Even so, a very strong quarter for HSBC has been seen.

Rolls-Royce and Taylor-Wimpey are amongst the European firms reporting quarterly earnings today. On Wall Street, technology provider Arista Networks kicks off another busy earnings week later on, while Uber, scandal-rocked Activision Blizzard, GM, and Virgin Galactic all due to share quarterly figures later this week.

Check our US earnings season calendar for more information.

The USD continues its bearish form, with the Dollar Index dropping to the 92 level, after dipping below that. This is the greenback’s worse performance since May and hasn’t been helped by the Fed’s dovish stance on rate hikes.

The weaker dollar has been fairly good news GBP/USD, however. The pairing has climbed to fresh daily tops of 1.3925, helping reclaim territory that slide away on Friday. The pound has been supported by falling Delta variant COVID-19 case numbers in the UK, as well as the softer dollar.

UK PMI data is due this morning although the markets may be anticipating a slowdown in both services and manufacturing output. Labour shortages and higher input costs, similar to those in the US market, may have stymied July’s growth.

Crude oil, both WTI and Brent, drop away from gains made over the weekend. WTI futures are currently trading at around $73.11, while Brent is hovering around the $74.60 area.

Bitcoin has cleared $40,000 this morning, but it did so several times in the last week before falling away again and staying in the $39,000 range. The world’s most popular cryptocurrency has had a tough time sustaining incremental gains last month, so it’ll be interesting to watch BTC price action as August progresses.

Week Ahead: All eyes on US jobs report

A busy week ahead for the markets with the US nonfarm payrolls as the marquee event, as well as two major central bank statements.

Let’s start with the latest US nonfarm payrolls print.

June’s reading performed way above expectations, and the markets will be watching closer than ever when the latest data is released on Friday.

850,000 payrolls were added to the US economy in June – way above the 720,000 forecast. This was also the sixth consecutive month where new additions were made.

However, the unemployment rate rose from 5.8% to 5.9% – higher than the predicted 5.6% rate forecast. Labour force participation, the go-to metric for gauging workforce shortages nationwide rate didn’t budge at 61.6%.

Hiring appears to have dipped a little overall throughout the spring. There are a couple of reasons for this: virus fears; childcare costs; better unemployment insurance; stimulus & furlough schemes. However, it’s been reported that firms have upped wages in order to entice workers into taking new positions.

The employment rate is also an important measure for Fed Chairman Jerome Powell when assessing stimulus and support levels for the US economy.

We know Powell and co. are relatively comfortable about letting the economy run hot, even in the face of rising inflation. As Powell pointed out at the last Fed meeting, there remains a gap of 7.5 million jobs missing from the US economy, although some reports suggest the figure is 6.8m. Until these open positions are filled, expected more Fed stimulus and support.

In terms of indices, the S&P 500 and Nasdaq responded very well to last month’s bumper jobs report, reaching new record highs. Indices traders will be hoping for more of the same with July’s print.

Sticking with US-related data, ISM, one of the key purchasing manager index reporters for the American economy, shares its manufacturing and services outlooks this week.

US manufacturing was still robust last month, according to ISM’s PMI report, but supply chain issues continue to inhibit growth. The factories printing was rated at 60.6 – down from the 61.2 score registered in May.

Momentum is still strong. Four out of the five subindexes rated by ISM showed high growth. Consumer interest in new goods is still high, despite rising prices. But labour shortages, coupled with the rising price of commodities and materials, has caused bottlenecks and shortages as manufacturers struggle to keep up with demand.

“Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

The same can be said for the services sector: it expanded in June, but that expansion had softened compared with a best-ever May rating. In this case, the index fell from 63.5 to 60.1.

“The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high,” explained Chair of the ISM Services Business Survey Committee Anthony Nieves. “Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”

Keeping that momentum going is all important for America’s economic health – especially as the US is expected to be the driving force behind the global economic recovery across the rest of this year and beyond.

Moving away from data, a pair of central bank statements are on the way next week.

Starting with the Bank of England, rising inflation is the big one here.

In June, inflation reached 2.5%, thanks to widespread increase in consumer goods. This could just be pent-up demand in the British economy finally being unleashed, but as inflation is now at its highest levels for three years, economists’ nerves may be tested.

Governor Bailey has already made his stance clear: the price jumps are only temporary, and we could see it run as high as 3% by the year’s end. It should then fall away back to acceptable levels after that. Currently, the BoE has a mandate to steer inflation towards 2% and keep it there.

However, Bailey has stated he would be ready to pitch rate hikes should inflation run out of this control.

The Reserve Bank of Australia also shares its latest policy thinking and direction this week.

Chances are, no big changes are coming. Governor Philip Lowe has been very clear that no rate hike will be forthcoming until at least 2024. That’s despite Australia’s strong economic fundamentals.

The historic low cash rate of 0.1% isn’t going anywhere. What’s interesting, however, is that July’s meeting led to some tweaks in Australia’s QE programme. The scale has been pulled back. From September onwards, the rate of RBA bond purchases will slow from AUD$5bn to AUD$4bn per week.

The groundwork for more tweaks to policy has been laid by Governor Lowe. Let’s see what this week’s meeting brings in terms of any small-scale changes.

We can’t finish a preview of the week’s key events without touching on US earnings season.

Week three of large cap earnings reports for Q2 2021 begins on Monday. It’s not as busy as the previous week’s reporting flurry, but we still have some significant reports coming in, namely Alibaba and Uber.

Check out our US earnings calendar for more information on which major firms are sharing earnings reports this week or see below.

Major economic data

Date Time (GMT+1) Asset Event
Mon 2-Aug 8.55am EUR German Final Manufacturing PMI
  3.00pm USD US ISM Manufacturing PMI
 
Tue 3-Aug 5.30am AUD RBA Rate Statement
  5.30am AUD Cash Statement
  11.45pm NZD Employment Change q/q
  11.45pm NZD Unemployment Rate
 
Wed 4-Aug 2.30am AUD Retail Sales m/m
  1.15pm USD ADP Nonfarm Employment Change
  3.00pm USD US ISM Services PMI
  3.30pm OIL US Crude Oil Inventories
 
Thu 5-Aug 12.00pm GBP Asset Purchase Facility
  12.00pm GBP BOE Monetary Policy Report
  12.00pm GBP MPC Asset Purchase Facility Votes
  12.00pm GBP Monetary Policy Summary
  12.00pm GBP MPC Official Bank Rate Votes
  12.00pm GBP Official Bank Rate
  3.30pm GAS US Natural Gas Inventories
 
Fri 6-Aug 2.30am AUD RBA Monetary Policy Statement
  1.30pm CAD Employment Change
  1.30pm CAD Unemployment Rate
  1.30pm USD Average Hourly Earnings q/q
  1.30pm USD Nonfarm Employment Change
  1.30pm USD Unemployment Rate

 

Key earnings data

Mon 2 Aug Tue 3 Aug Wed 4 Aug Thu 5 Aug
Arista Networks Alibaba General Motors Ball Corp
Activision Blizzard The Kraft Heinz Co Beyond Meat
Roku Inc Illumina
Uber Technologies Square Inc
The Trade Desk
Virgin Galactic Holdings

Earnings Season: Amazon’s $100bn quarter still misses expectations

Despite huge sales, Amazon shares took a knock after the ecommerce pioneer reported its Q2 earnings. Here’s why.

Amazon earnings

Amazon’s headline stats

It’s a third $100bn quarter in a row for Amazon, but its stock price wasn’t too ecstatic about these huge figures. AMZN stock fell 7% in extended trading on Thursday following the firm’s Q2 2021 earnings report.

Why? Despite clocking in at an eyewatering $113.08 billion, revenues still fell short of market estimates of $115.2bn.

Even with Q2 sales growing 27% year-on-year, this showed a slowdown in Amazon’s growth compared against the 41% year-on-year growth seen in Q2 2020.

Key takeaway stats from the Amazon earnings reports are:

  • Earnings per share – $15.12 vs $12.30 estimated
  • Revenue – $113.03bn vs $115.2bn

So good news on the EPS front, but still that sales drop off has caused investors to feel less optimistic regarding amazon.

The rise and rise in sales in 2020, and the rapid growth rates, is essentially all tied in with the pandemic. With shoppers essentially stuck at home, online retail boomed worldwide. With Amazon already the number one global retailer, it’s only natural that it benefited greatly from homebound consumers.

With economies opening up once more, and shoppers shifting their spending from products to experiences, like trips, leisure activities and dining, the sales drop isn’t so surprising.

Even so, Prime Day, Amazon’s showpiece sales event, took place in June this year. 250 million items were sold then – more than any other Prime Day to date.

New CEO Andy Lassy has taken the reins from founder and world’s richest man Jeff Bezos this quarter. Speaking to reporters, Lassy was quick to point out that Amazon Web Services (AWS) is on a strong growth footing, which may comfort investors.

In the quarter ending June, AWS sales totalled $14.8bn showing annualised growth of 37%. This particular sector outperformed Amazon’s wider retail business. It also outperformed its rate of expansion in Q2 2020, which was measured at 29%.

It was partly AWS’ success, alongside high profitability in the cloud-computing, subscriptions, and advertising segments, that helped earnings smash Wall Street expectations.

Amazon guidance

CFO Brian Olsvasky has said Amazon expects to record sales between $106bn and $112bn in quarter three. That would be growth of around 10-16%, compared against the same period in 2020.

Once again, this falls shorts of consensus estimates. Wall Street was predicting Q3 sales to accelerate further to reach $119.2bn.

Amazon’s FAANG contemporaries also believe their revenues will fall away from pandemic highs in 2021’s third quarter. Apple, for instance, has cited supply chain difficulties affecting its ability to sustain its high Q2 performance. Like Amazon, this led to a drop in its share price.

“Our customers are safe and healthy and ordering from us. And we know that there’ll be more vacations or be more mobility. They’ll be things that probably people shied away from last year and that’s all good,” Olsavsky said. “But it does tend to lead them to do other things besides shop. So, we’re just adjusting our run rates in the period that we see that happening.”

To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.

Earnings season: Facebook beats Wall Street but signals slowing growth

Mark Zuckerberg’s social media behemoth enjoys a very strong record, but headwinds may blow strong across the rest of the year.

Facebook earnings

Facebook’s headline stats

Facebook posts its fastest-growing quarter since 2016 with revenues expanding 56% in the quarter ending June 2021.

According to its results, Facebook notched up a 47% rise in its average price per ad. It also increased the volume of ads it delivered by 6% year-on-year.

That’s quite an interesting dichotomy. While revenues generated from its ad service is up massively, the number of ads delivered hasn’t kept pace. This may feed into problems down the line. It could also ultimately show how much more Facebook is currently charging for ad space.

Monthly average users (MAUs) also grew. Now, approximately 2.9 billion customers regularly use the social media network each month. Daily active users (DAUs) total 1.91bn, in line with Facebook expectations.

Across its multiple apps, which includes Messenger, WhatsApp and Instagram, Facebook’s total users clocked in at 3.51bn for the quarter – up from the 3.45bn registered in Q1.

Let’s have a look at the overall breakdown of Facebook’s Q2 2021 numbers:

  • Earnings – $3.61 per share vs. $3.03 analyst estimates
  • Revenue – $29.08 billion vs. $27.89 billion analyst estimates
  • DAUs – 1.91 billion vs. 1.91 billion analyst estimates
  • MAUs – 2.90 billion vs. 2.91 billion analyst estimates
  • Average revenue per user (ARPU): $10.12, vs. $9.66 analyst estimates

Of course, ad revenues are Facebook’s chief cash generator, but it also has a variety of other products which bring in cash. Its “Other” segment covers commercial hardware, including Oculus Rift VR headsets. Revenues generated from this sector of Facebook’s business fell below the expected $685.5m at $497m.

Free cash flow also dropped. Estimates suggested it would total $9.08bn for this quarter. In reality, the figure was $8.51bn.

Facebook guidance

Regarding its 2021 H2 performance, Facebook said it expects “year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.”

This is essentially unchanged from the guidance issued at the end of Q1.

A lot of Facebook’s future direction comes from what CEO Mark Zuckerberg calls the “metaverse”.

Zuckerberg describes this as “a virtual environment where you can be present with people in digital spaces.”

How this differs from the current experience is really yet to be seen.  A new team has been formed at Facebook HQ to develop this vision into a tangible reality. Zuckerberg is certainly optimistic.

“In the coming years, I expect people will transition from seeing us primarily as a social-media company to seeing us as a metaverse company,” he said.

Advertising will probably still play a key role here, but Facebook may continue to develop its VR capabilities in order to pull off this project.

The key thing the markets took away from Facebook’s call with analysts and journalists was a slump in revenue growth. Facebook share prices fell 5% after the company’s guidance announcement, showing slowing revenues will be a thorny issue for investors moving forward.

This mirrors other tech giants like Tesla and Apple who experienced similar share price dips after reporting this quarter’s earnings, albeit for different reasons.

The social media giant said ad headwinds are most likely to going to blow strongly throughout the rest of 2021. Regulatory and platform changes were cited, as well as Apple’s iOS 14.5 update, which allows users more flexibility in how apps track their activity.

Rivals Snap and Twitter have seemingly managed to navigate their way through the iOS changes. It’s now up to Facebook to do the same.

Then there is government scrutiny and lawsuits against Facebook. A recent antitrust complaint from the Federal Trade Commission was dismissed by judges, alongside a separate complaint, filed by 48 states attorneys. The FTC, however, is determined to fight this and give Facebook another day in court. It has until August 19th to alter its complaint.

President Biden is apparently no fan of Facebook either. The sitting president has stated that Facebook is not doing enough to combat the spread of misinformation on its platforms, even going so far as to say, “they’re killing people”.

What does the market think about Facebook?

Despite the 5% post-report drop in pre-US market trading Facebook shares experienced on Wednesday, 2021 remains a strong year for price action.

Facebook shares are up 37% since January, beating the S&P 500’s 17% rise in the same period.

Analyst consensus is a strong buy:

Facebook analyst consensus

News sentiment is also bullish, placing Facebook higher than the sector average:

Facebook news sentiment

So, a strong quarter for Facebook. What’s next? Challenges will likely intensify, but the onus is now on Zuckerberg et al to stick to their forecasts and keep things in line with market expectations as the year progresses.

To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.

Earnings season: Another record-breaking quarter for Apple

Apple smashes yet another quarterly earnings season – but the stock price takes a hit.

Apple earnings

Apple’s headline stats

Apple beats Wall Street expectations once again. This was its strongest June quarter report on record, with sales of all major Apple product lines up 12% across the board.

Overall revenues were up 36% year-on-year for a total of $81.41 billion. When broken into key categories, Apple’s latest quarterly revenues look something like this:

  • Total Revenue – $81.41 billion – 36% y-o-y growth
  • iPhone revenue – $39.57 billion – 49.78% y-o-y growth
  • Services revenue – $17.48 billion – 33% y-o-y growth
  • Other Products revenue – $8.76 billion – 40% y-o-y growth
  • Mac revenue – $8.24 billion – 16% y-o-y growth
  • iPad revenue – $7.37 billion – 12% y-o-y growth
  • Gross margin – 43.3% y-o-y growth

It’s of course iPhones that represent the largest chunk of Apple’s quarterly revenues. The California brand launched its latest iteration in October last year. Since then, it’s place as the centrepiece in the Apple crown has gone undisputed.

As we can see from the above, other Apple products, including Macs and iPads, also remain extremely popular with consumers.

“Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices,” said Luca Maestri, Apple’s CFO, in a statement released on Tuesday.

“We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans.”

In terms of guidance, Maestri said the company is forecasting double-digit year-on-year growth into the next quarter, although this is expected to slow in September.

Apple stock still takes a knock

Despite these huge gains, Apple shares reacted poorly to Maestri’s September forecasts. The stock fell 2% after the announcement and is currently trading down roughly 0.7%.

This comes even after earnings per share rose from the estimated $1.01 to $1.30.

So, why the dip? It’s the same thing that affected Tesla this year, and indeed most tech companies involved in physical hardware: supply side issues.

There is currently a global chip shortage. A shortage of silicon used to manufacturer chipsets necessary for building Apple products has caused supply and manufacturing issues. The most affect products were Macs and iPads, which use “legacy nodes”, i.e., older chip models, unlike the iPhone which runs on more current chipsets.

“We had predicted the shortages to total $3 to $4 billion,” Apple CEO Tim Cook told CNBC. “But we were actually able to mitigate some of that, and we came in at the lower than the low end part of that range.”

The drop in Apple share price may then have been caused by consternation around the coming quarters’ performance until the end of 2021. Will supply shortages stymie growth? Likely so, but Apple has proven it can mitigate these and still come out on top. However, it’s how much growth slows across the rest of the year, if it does, that may have caused concern for investors.

Apple analyst sentiment

Even with stock down, sentiment appears to be fairly strong. According to the Analyst consensus tool on the Marketsx platform, Apple holds a buy rating according to 25 market observers’ opinions:

Analyst consensus for Apple on 28.07.2021.

Sentiment is also veering towards the bullish:

Apple news sentiment for 28.07.2021.

So, another massive quarter for the world’s foremost tech brand. Now, it’s up to Cook, Maestri and the rest of the team to navigate Apple through a world where commodities and raw materials are in short supply. Can it deliver? Watch this space.

To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.

Earnings season: Tesla steps on the gas with earnings beat

Tesla once again posts strong quarterly earnings figures and clears some major milestones.

Tesla earnings

Tesla’s headline stats

Released yesterday after US market close, Tesla’s Q2 2021 earnings beat Wall Street expectations.

The world’s foremost electric fortunes surged this quarter. Net income for 2021’s second quarter reached $1.14bn – surpassing the $1bn mark in a quarter for the first time. It’s also a ten-fold increase against Q2 2020’s net income levels.

Revenues generated from Tesla’s core automotive business clocked in at $10.21bn. Total revenues reached $11.96bn – nearly double the $6.04bn registered a year ago.

The company broke its previous vehicle delivery records too. Deliveries, a metric akin to sales when gauging Tesla’s success, amounted to 201,250 in the quarter ending June 30th 2021.

Production volumes stood at 206,421.

While the vast bulk of its revenue stream came from vehicle sales and associated services, Telsa also made money selling its government-sourced regulatory credits.

Regulatory credits are awarded to manufacturers as an incentive to develop electric vehicles. As Tesla only manufactures EVs, it gets these for free, which it then can sell on for a massive profit to other marques that have yet to meet regulatory requirements.

Sales of regulatory credits contributed 3.5% of revenues, equating to $354m.

Servicing looks like it is becoming a major money spinner for Tesla. With more vehicles on the roads, some 121% year-on-year, Tesla has boosted its service offer. It now operates 598 stores and service centres worldwide. According to its latest reports, service and maintenance generated $951 million this quarter.

One aspect where Tesla took a hit was its Bitcoin holdings. You may recall, the automaker caused consternation earlier in the year, when it snapped up $1.5bn in BTC tokens in March. Questions were raised around the validity of this strategy: is Tesla an auto manufacturer or a crypto trader?

CEO Elon Musk is famous for his enthusiasm for cryptocurrencies. However, he and his company were instrumental in instigating one of BTC’s famous price wobbles. First Tesla announced they were going to accept Bitcoin as payment for its vehicles in May. A week later, the company reneged on this, citing environmental concerns.

A $23m impairment on the value of Tesla’s BTC holdings was noted in this quarter’s report. This was filed under a “restructuring and other” operating expense.

Tesla’s post-earnings share action

Tesla shares rose 2% in after-hours trading following the earnings release.

As of Tuesday, pre-UK lunchtime, Tesla was trading for around $648 per share.

EPS beat Wall Street estimates. Forecast at $0.98, real earnings-per-share was valued at $1.45.

Upon this Street-beating report, sentiment on Tesla is naturally very positive.

Tesla senitment indicator.

Analyst recommendations rate Tesla as a “buy”.

Tesla analyst sentiment.

Where next for Tesla?

Despite having a bumper Q2, there still remains lots of challenges for the brand.

The largest is the global shortage of chips necessary for EV production. Volume production will be limited, Musk said on a call with investors yesterday, depending on whether supply shortages can be overcome.

This year, Tesla is aiming to boost deliveries by 50%.

Despite market suggestions, Musk dismissed ideas of Tesla setting up its own chip hub. “That would take us, even moving like lightning, 12 to 18 months,” he said.

Tesla claims it is on track towards building its first Model Y models in new facotires based in Berlin, Germany and Austin, Texas. Model Y cars should start rolling off production lines in these locations by the end of 2021.

However, the launch of its commercial semi-truck programme has been delayed. This is again due to supply chain snags, specifically the availability of battery cells.

No indication was given by Tesla as to when it will start production of its futuristic Cybertruck pick up platform.

Essentially, the next months will rely on the global chip status. Rising input costs in US and European plants, caused by rising worldwide commodities prices, may put the brakes on rapid expansion as the year progresses.

Week Ahead: The Fed meets as inflation bites

The Fed meets as inflation starts to bite into the US economy. Will we see any major changes from Powell and co? US GDP is in focus too with forecasts calling for more record quarterly growth. Meanwhile, Tesla hits the accelerator on the busiest US earnings season week so far this quarter.

Earnings reports aside, the week’s big event is July’s FOMC meeting.

Inflation and a hot-running economy are likely to take centre stage during July’s talks. We’ve recently seen Chairman Powell pledge “powerful support” for the US economy post-pandemic amidst a backdrop of rising inflation.

According to Powell, current rising consumer prices is down to the nation’s reopening and will fade. In a testimony to the US House of Representatives, Powell stuck to the jobs script, pointing out there is still 7.5 million jobs missing from the US’ pre-pandemic economy.

A reduction in stimulus is some way off, according to Powell. The Fed’s $120bn a month bond purchasing programme is probably not going to change. As mentioned above, this is tied in with labour markets. Bond-buying and Fed support will likely remain in place until those job gaps are filled.

No rate hike is expected until 2023 at the earliest.

But for all the Fed’s talk of inflation being broad-based, stemming from heightened economic activity, many remain unconvinced on the plan to let the economy run hot.

June’s headline CPI print of 5.4% was the highest reading for nearly 13 years. Observers on both the Democratic and Republic side will be hoping this can be tamed relatively soon.

Powell has promised that if inflation runs rampant, “we will use our tools to guide inflation back down.”

But “it would be a mistake to act prematurely.”

Sticking with the US economy, we are due the first reading of the nation’s Q2 GDP on Thursday.

So far, predictions are good. Deloitte cites technological advances may help power the US towards another bumper quarter – outstripping pre-pandemic growth levels.

The Conference Board has predicted the US economy will grow at an annualised 9% in 2021’s second quarter.

“As the economy fully reopens and consumer confidence continues to rise, we expect consumer spending to help drive the recovery forward – especially spending on in-person services,” TCB said. “These outlays will be underpinned by a strengthening labour market and a large pool of savings derived from three rounds of fiscal stimulus checks dispersed over the last year.”

We’ve also seen in previous PMI releases that manufacturing and services sectors have continued to act on a growth footing into June following a strong April and May. Three months of solid PMI performance should help power US GDP growth this quarter.

But again, all of this pent up demand being unleashed is leading into the higher core consumer goods prices the US is currently experiencing. We’ve also had reports of high input prices starting to affect manufacturing output too. June’s manufacturing PMI reading was actually slightly lower than May’s for instance.

But, if predictions are correct, the US is about to experience one of its best periods of quarterly growth since the Second World War.

Moving away from data, it’s the busiest week for earnings season this quarter so far.

Nearly 40 US large caps are due to share their Q2 earnings this week. This includes the bulk of the FAANG stocks. Netflix reported last week, but these remaining tech giants, Alphabet (Google), Amazon, Facebook, and Apple, are all reporting in.

Tesla, however, kicks off proceedings with its earnings summary coming on Monday after US market close.

This is interesting because Tesla has rocketed 330% in terms of share price between May 2020-May 2021 and traditionally share prices tend to rise prior to Tesla releases. They have done so at an average of 1.6% ahead of all quarterly releases for the past three years.

Elon Musk’s carmaker has much to celebrate this quarter. It delivered 200,000 in a quarter for the first time. Tesla has also unleashed a range of new automation services, based on an $199-per month subscription service.

Earnings forecasts are strong, but we’ll know more on Monday.

For more information on which large caps are reporting, be sure to check out our US earnings calendar.

Major economic data

Date Time (GMT+1) Asset Event
Mon 26-Jul 9.00am EUR German ifo Business Climate
 
Tue 27-Jul 3.00pm USD US Consumer Confidence
 
Wed 28-Jul 2.30am AUD CPI q/q
  2.30am AUD Trimmed Mean CPI q/q
  1.30pm CAD CPI m/m
  3.30pm OIL US Crude Oil Inventories
  7.00pm USD FOMC Statement
  7.00pm USD Federal Funds Rate
  7.30pm USD FOMC Press Conference
 
Thu 29-Jul 1.30pm USD Advanced GDP q/q
  3.30pm GAS US Natural Gas Inventories
 
Fr 30-Jul 9.00am EUR Germany Preliminary GDP q/q
  1.30pm CAD GDP m/m
  1.30pm USD Core PCE Price Index m/m

 

Key earnings data

Mon 26 Jul Tue 27 Jul Wed 28 Jul Thu 29 Jul Fri 30 Jul
Tesla 3M Automatic Data Processing CME AbbVie
General Electric Boeing Keurig Dr Pepper Aon
Advanced Micro Devices McDonald’s Mastercard Caterpillar
Alphabet (Google) Pfizer Merck Chevron
Apple Shopify Amazon Exxon Mobil
Microsoft Spotify Gilead Procter & Gamble
Mondelez Facebook Liberty Global Takeda Pharmaceutical
Starbucks Ford Pinterest Berkshire Hathaway
Teladoc Health PayPal Twilio
Visa Qualcomm

 

Week Ahead: ECB to tilt after strategic shift?

The ECB clarifies its policy position following June’s strategic shift this week. Data is dominated by UK monthly retail sales following a bumper second quarter, and a flurry of PMI reports. Meanwhile, Q2 earnings season heats up on Wall Street.

Let’s start with the major central bank announcement of the week. This time, it’s the turn of the European Central Bank. Markets will be watching the ECB’s next moves with additional scrutiny as it committed to a strategic refresh earlier last month.

We’ve seen inflation rates rise in the UK and US recently. While Eurozone inflation dipped away from a two-year high a couple of weeks ago, inflation and its effects have been brought to the fore of EU monetary policymakers’ thinking.

Following an 18-month strategic review, the EU has shifted its inflation target to 2%. According to observers, that would give the bloc enough wiggle room to a) accept temporary inflation rates above that and b) keep interest rates near or at historic lows.

Could this feed into a change in pandemic monetary policy? It’s possible, but the fact there is space for ECB policymakers to keep rates low suggests there’ll be no major change from the bloc’s current monetary trajectory.

At June’s meeting, the European Central Bank reiterated its commitment to €1.85 trillion in asset purchases under its PEPP mechanism. This was said to remain in place until March 2022.

Turning to data, one of the week’s key releases is UK retail sales for June and the month-to-month comparisons.

We can gauge June’s figures by looking at the recently-released Q2 2021 retail numbers reported by the British Retail Consortium alongside KPMG.

According to BRC, retail sales jumped 10.4% between April-June when weighted against the same period in 2019. This was the fastest quarterly growth reported since records began back in 1995.

The report also comes with an initial British retail health check for June too. KPMG reports that, against 2019’s levels, retail sales in June shot up 13.1%.

For context, BRC and KMPG are weighing retail sales against 2019’s numbers, as 2020’s numbers have been distorted by the Covid-19 pandemic.

A combination of lockdown easing, warmer summer temperatures, and Euro 2020 contributed to the rise in retail spending. Additionally, many UK holidaymakers have had no choice but to stay at home, thus keeping money that would be spent overseas in the local economy.

All of this is down to pent up demand being unleashed as lockdown restrictions lift. From Monday, nearly all of the major restrictions on British life are being removed, so the battle for wallets is now on.

What will be interesting to see is any change in habits from retail spending to experiences. This was the trend in the US for the past couple of months, so UK may shoppers may also move towards doing things rather than buying things.

We also have a wealth of PMI reports coming in from the US, UK, and the EU on Friday.

For the UK, both services and manufacturing IHS Markit PMIs showed the UK is still very much on a growth footing.

Starting with manufacturing, June’s reading came in at 63.9, a touch lower than May’s all-time high of 65.6, but still one of the highest rates in the survey’s 30-year history. However, industry insiders warned supply chain snarls and high input costs meeting surging demand could cause a slowdown in factory output going forward.

June’s services PMI reading was in line with UK manufacturing: a slight dip away from May’s high, but still showing strong growth. The actual reading came in at 62.4. However, rising operational expenses and staff shortages could impact growth in the short term, as could rising inflation. We’ll get a clearer picture with July’s reading.

The EU will be hoping to keep the momentum rolling into July too. June’s readings were some of the most positive for years. June’s composite flash index was 59.2 – an increase over the 57.1 registered in May. Services bounced from 55.2 to 58.0, suggesting pent up demand is driving the hospitality and services sector forward.

The US, while thriving, could have reached its peak, according to PMI releases. Its composite score for June was 63.7 – the second-fastest rate of expansion on record.

Chris Williamson, chief business economist at IHS Markit, said: “June saw another month of impressive output growth across the manufacturing and services sectors of the US economy, rounding off the strongest quarterly expansion since data were first available in 2009.”

“The rate of growth cooled compared to May’s record high, however, adding to signs that the economy’s recovery bounce peaked in the second quarter.”

Inflation will no doubt play a big role in July’s PMI calculations. Core and non-core prices are up in the economies mentioned above, but Friday’s release will give us a better understanding of its impact on US economic activity.

We also transition into the second week of US Q2 earning season. A mixture of tech and FMCG firms are reporting this week, including the likes of Netflix, Twitter, Intel, Johnson & Johnson, and Coca-Cola.

Oilfield services and engineering firm Schlumberger may be one to watch. Oil prices have gone from strength to strength this the tail end of last year. Has this fed into increased activity for multinationals like Schlumberger and consequently better financial results?

You can find a run down of the large caps reporting on Wall Street this week below, but you can also see our full US earnings calendar here.

Major economic data

Date Time (GMT+1) Asset Event
Tue 20-Jul 2.30am AUD Monetary Policy Meeting Minutes
 
Wed 21-Jul 2.30am AUD Retail Sales m/m
  3.30pm OIL US Crude Oil Inventories
 
Thu 22-Jul 12.45pm EUR Monetary Policy Statement
  12.45pm EUR Main Refinancing Rate
  1.30pm EUR ECB Press Conference
  3.30pm GAS US Natural Gas Inventories
 
Fri 23-Jul 7.00am GBP Retail Sales m/m
  8.15am EUR French Flash Manufacturing PMI
  8.15am EUR French Flash Services PMI
  8.30am EUR German Flash Manufacturing PMI
  8.30am EUR German Flash Services PMI
  9.00am EUR Flash Manufacturing PMI
  9.00am EUR Flash Services PMI
  9.30am GBP Flash Manufacturing PMI
  9.30am GBP Flash Services PMI
  1.30pm CAD Core Retail Sales m/m
  1.30pm CAD Retail Sales m/m
  2.45pm USD Flash Manufacturing PMI
  2.45pm USD Flash Services PMI

 

Key earnings data

Mon 19-Jul Tue 20-Jul Wed 21-Jul Thu 22-Jul Fri 23-Jul
Philip Morris International Coca-Cola AT&T American Express
IBM
Netflix Johnson & Johnson Newmont Goldcorp Schlumberger
Verizon Communications Intel Corp
Snap Inc
Twitter Inc

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