Big tech weighs, Natwest rounds off solid quarter for UK banks

European shares once again fell and then tried to come off the flatline in early trade on Friday after another down day in the previous session, but the mood is pessimistic.

The FTSE 100 is trading above 5,500 but with little support under 5,400 we could yet see a retest of the March lows at 5,000-4,800.

Wall Street rallied as the bulls put in a solid defence with the S&P 500 recovering 3,300. Big tech earnings beat expectations yet shares fell after hours and this weighed on the futures, which are pointing to a weak open for the US market. Bear in mind also month-end flows which are helping muddy the waters.

The US dollar surged with US yields moving higher yesterday. DXY advanced to near-term resistance at the top of the October range at 94. WTI (Dec) sank amid the broad risk-off tone yesterday and demand fears were to the fore.

US jobless claims fell and GDP in the world’s largest economy rebounded a little more than expected in the third quarter, but none of this matters much since the market is entirely focused on the spread of new cases and lockdown measures.

The annualized 33.1% bounce in the third quarter masks the fact the economy is 15% smaller than it was before the pandemic hit. The pace of the recovery is slowing in the fourth quarter albeit it remains on a sure enough footing compared to Europe (lockdowns to blame there), whilst the glow from the $600-a-week stimulus cheques (which stopped at the end of July) is dimming quickly. And whilst we believe new stimulus measures are coming over the hill, the longer the delay the tougher it becomes for Main Street.

The European Central Bank (ECB) didn’t do anything but sounded more dovish and signalled it is ready to act in December by pumping up its emergency quantitative easing programme.

In fact, there was overall a surprisingly strong pre-commitment to taking additional easing measures in December. It’s all but a down deal now that France and Germany have locked down and the economy is heading for another recession.

The euro fell, weighed down by the dollar’s advance but also because of the ECB’s stance. Christine Lagarde said staff were working on recalibrating all instruments, which means even interest rates could be cut further in addition to expanding QE envelopes.

EURUSD dropped to take a 1.16 handle but found support at the 100-day SMA at 1.1650. Cable traded weaker, briefly taking a 1.28 handle but caught some bid around the 1.29 level to steady the ship. 100-day SMA at 1.2877 offers the near-term support under here.

More upbeat numbers from the high street banks with Natwest this morning reporting Q3 operating profit more than twice market estimates at £355m vs ~£130m expected.

Impairments were half the market expectations at £254m vs over £550m expected. CET1 very strong at 18.2%, net interest margin down 2bps to 1.65%. A good set of numbers to round off a strong performance by the UK banks but doubts remain about a potential increase in impairments down the road, weak economic growth in the UK, Brexit challenges, and the threat of negative rates eating away at margins.

Big tech reported earnings that showed its resilience to the virus but also betrayed just how richly priced these stocks are in the wake of the pandemic. With the exception of Google parent Alphabet, shares fell across the board after hours, which weighed on US futures overnight.

Alphabet shares rose over 6% in after-hours trading as earnings indicated a bounce back in the search business. EPS of $16.40 beat the $11.29 expected, on revenues of $46.17bn. Advertising revenue rose to $37.10bn, compared to $33.80 bn in the year-ago quarter. YouTube +32% was notably strong. Alphabet will start breaking out its cloud earnings performance from the next quarter.

Amazon posted a blowout third quarter of revenue growth and is poised to capitalise on a record Christmas shopping season. Net income rose to $6.3bn vs $2.1bn in the same quarter a year before despite spending significant amounts on coping with the virus.

In total, Amazon has incurred more than $7.5bn in incremental Covid-related costs in the first three quarters of 2020, and expects to incur approximately $4bn in Q4, CFO Brian Olsavsky said. AWS net sales rose 29% to $11.bn. Shars slipped almost 2% in the after-hours market.

Facebook shares fell 3% after-market as it posted a decline in North American users and signalled more uncertainty ahead. Revenue +22% to $21.47bn was a beat to expectations, whilst net income was +29% to $7.85bn. Whilst the shift offline to online among business and retail is a powerful tailwind for the advertising earnings, shares priced for lots of growth are just as sensitive to user numbers and the drop in core US/Canada users is a concern.

Similarly, Twitter shares got whacked after hours as it too posted a disappointing user growth story. Revenues rose 14% to $936m in the quarter, but the +1m gain on daily active users to 187m was short of the 195m expected.

Finally, Apple shares fell 5% after hours as a 20% decline in iPhone revenues weighed on the stock, whilst the lack of any guidance for 2021 was taken as a negative.

Whilst Mac and iPad sales rose strongly over the company’s fiscal fourth quarter, it was not enough to offset the drop in iPhone sales. However, with the quarter covering the period immediately before the launch of the iPhone 12, we would think that weakness in iPhones will prove fleeting.

Mac revenues +28% to $9bn and iPad sales +46% to $6.8bn partially offset iPhone’s –20.7% to $26.44bn. EPS of $0.73 beat the $0.70 expected, whilst overall group revenues rose 1%. Services continues to do well, with revenues +16.3% to $14.55bn.

Uncertainty around the virus means Apple continues to not offer guidance, however Tim Cook said he was optimistic about the iPhone 12 and is ‘confident’ Apple will grow in Q1 2021. Ecosystem is still the biggest draw and should support the multiple expansion.

Wochenausblick: Big Tech Gewinne heizen vor der Wahl die Volatilität an

Es wird voraussichtlich eine volatile Woche für die US-Märkte, da die Earnings Season an der Wall Street mit den Berichten von Big Tech weitergeht. Apple, Amazon, Microsoft, Alphabet und Facebook sind unter den größten Namen, die ihre Quartalsberichte veröffentlichen. Währenddessen hört man viel von den Zentralbanken, mit Treffen der Bank of Japan, der Bank of Canada und der Europäischen Zentralbank. Und natürlich zählen wir alle die Tage bis zur Präsidentschaftswahl im November und behalten alle Augen auf dem Vix.

Big Tech Gewinne

Es ist eine große Woche für Geschäftsberichte und der Fokus wird zweifelsfrei auf den FAANGs liegen, mit den Donnerstags erwarteten Geschäftsberichten von Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) und Facebook (FB). Die Geschäftsberichte kommen im Schatten einer kartellrechtlichen Ermittlung, die das US-Justizministerium (DOJ) gegen Googles Muttergesellschaft Alphabet gestartet hat. Der Fokus der Ermittlungen liegt auf Vereinbarungen, die Alphabet mit Handy-Herstellern und Netzanbietern gemacht hat, um Google als Standardsuchmaschine auf neuen Handys auszuliefern. Während Anleger das bisher nicht groß tangiert hat, könnten die Geschäftsberichte zu einer größeren Volatilität auf dem Aktienmarkt führen.

Es bestehen weiter Bedenken, dass der Fall zu einem Aufschwung für das Service-Angebot von Apple führen könnte. Das DOJ sagt, dass Apple zwischen 8 und 12 Milliarden USD an Google verdient, was etwa 17-26% des Umsatzes des Service-Bereichs von Apple entspricht. Apple hat vor kurzem das iPhone 12 vorgestellt, mehr und mehr ist der hohe Aktienwert aber durch das Ökosystem und Umsatz aus dem Service-Bereich bedingt. Nichtsdestotrotz bleiben Analysten bullisch was die Tech-Giganten angeht, die weiterhin unter den größten Gewinnern dieses Jahres bleiben. Microsoft veröffentlicht seine Berichte am Dienstag und eine Vielzahl weiterer Aktien mit hoher Marktkapitalisierung folgen in den kommenden Tagen.

EZB

Mit steigendem Euro gegen den US-Dollar liegt der Fokus der Devisenmärkte auf dem Treffen der Europäische Zentralbank (EZB) am Donnerstag. Die Märkte wetten immer stärker darauf, dass die EZB weitere Lockerungen anleitet, um die stockende Konjunktur und stagnierende Preise anzuheizen. Die Eurozone begann im September ihren zweiten Monat der Deflation in Folge und die Risiken weiterer Einschränkungen im Block auf die wirtschaftliche Entwicklung haben sich seit dem letzten Treffen deutlich verschlechtert. Die Gefahr eines Rückfalls in eine Rezession ist real. So sagte Christine Lagarde vor kurzem, dass das Wiederaufflammen des Virus eine klare Gefahr für die Wirtschaft ist. Angesichts der trüben Aussichten und des schrecklichen Inflationsumfelds scheint es überaus wahrscheinlich, dass die EZB ihr Anleihenkaufprogramm bis Dezember um weitere 500 Mrd. EUR erhöhen wird.

Um einen Eindruck der Stimmung in der EZB zu erhalten, sagte der normalerweise falkenartige österreichische Kopf der Zentralbank Robert Holzmann vor kurzem: „Weitere belastbare, weitergreifende oder striktere Maßnahmen benötigen wahrscheinlich kurzfristig monetäre und steuerliche Anpassungen.“

In der Zwischenzeit finden diese Woche außerdem Treffen der Bank of Japan und der Bank of Canada statt.

Wirtschaftsdaten

Der vorläufige Bericht zum Wachstum des US-BIP im dritten Quartal wird das Highlight der Märkte sein, die nach Hinweisen suchen, wie schnell und nachhaltig die Erholung von statten geht. Es wird auf Grund der Wiedereröffnung der Geschäfte nach dem ersten Lockdown von einem Wirtschaftswachstum um die 30% gerechnet. Die Prognose der Fed von Atlanta geht davon aus, dass die Wirtschaft im Quartal um 35% gewachsen ist – aber dies verdeckt natürlich den tatsächlichen Schaden, wenn dieses Wachstum auf einen Absturz von 31% im zweiten Quartal folgt. Der Bericht zum BIP kommt für Donald Trump genau richtig, der in der Lage sein wird, behaupten zu können, die Wirtschaft laufe spitze.

Wahlbeobachtung

Die letzte Hürde: Umfragewerte ändern sich wahrscheinlich nicht viel – die Anzahl der unentschiedenen Wähler ist diesmal klein. Biden hat landesweit einen starken Vorsprung, aber bei den hart umkämpften Schlüsselstaaten, die das Rennen letztendlich entscheiden, sie es knapper aus. Wir richten am 2. November ein spezielles Vorwahlkampf-Live-Event aus, um die Reaktion der Märkte durchzuspielen.

Top Wirtschafts-Daten der Woche

Öffnen Sie den Wirtschaftskalender auf der Plattform für eine vollständige Übersicht der Veranstaltungen und Ereignisse.

Date  Event 
Oct 26th  German Ifo business climate 
Oct 26th  UK Nationwide house price index 
Oct 26th  US new home sales  
Oct 26th  SNB Chairman Jordan speaks 
Oct 27th  BoJ core CPI 
Oct 27th  US durable goods, core durable goods 
Oct 27th  US CB consumer confidence 
Oct 28th  Australia CPI inflation 
Oct 28th  Bank of Canada rate decision 
Oct 28th  EIA crude oil inventories 
Oct 28th  FOMC member Kaplan speaks 
Oct 29th  Bank of Japan policy statement & economic outlook 
Oct 29th  German preliminary CPI inflation 
Oct 29th  UK mortgage approvals & lending figures 
Oct 29th  US advanced GDP – Q3 
Oct 29th  US weekly jobless claims 
Oct 29th  ECB policy decision & press conference 
Oct 29th  US pending home sales 
Oct 29th  US natural gas storage 
Oct 30th  Tokyo core CPI 
Oct 30th  Japan industrial production 
Oct 30th  French flash GDP 
Oct 30th  German preliminary GDP 
Oct 30th  Eurozone CPI flash estimates 
Oct 30th  Canada GDP 
Oct 30th  US personal spending & core PCE price index 
Oct 30th  Chicago PMI 
Oct 30th  UoM consumer sentiment 

 

Top Geschäftsberichte diese Woche

Vergessen Sie nicht unsere täglichen Earnings Season Specials auf XRay einzuschalten, um weitere Updates zu erhalten.

Date  Company  Event 
26-Oct  SAP SE  Q3 2020 Earnings 
27-Oct  Microsoft Corp.  Q1 2021 Earnings 
27-Oct  Pfizer Inc.  Q3 2020 Earnings 
27-Oct  Ping An Insurance Co.  Q3 2020 Earnings 
27-Oct  Merck Co.  Q3 2020 Earnings 
27-Oct  Novartis AG  Q3 2020 Earnings 
27-Oct  Eli Lilly and Co.  Q3 2020 Earnings 
27-Oct  3M Co.  Q3 2020 Earnings 
27-Oct  AMD (Advanced Micro Devices) Inc.  Q3 2020 Earnings 
27-Oct  Caterpillar Inc.  Q3 2020 Earnings 
27-Oct  HSBC Holdings plc  Q3 2020 Earnings 
27-Oct  S&P Global Inc  Q3 2020 Earnings 
27-Oct  BP plc   Q3 2020 Earnings 
28-Oct  Visa Inc.  Q4 2020 Earnings 
28-Oct  MasterCard Inc.  Q3 2020 Earnings 
28-Oct  United Parcel Service Inc. (UPS)  Q3 2020 Earnings 
28-Oct  Amgen Inc.  Q3 2020 Earnings 
28-Oct  ServiceNow Inc  Q3 2020 Earnings 
28-Oct  Boeing Co.  Q3 2020 Earnings 
28-Oct  Sony Corp.  Q2 2020 Earnings 
28-Oct  GlaxoSmithKline plc (GSK)  Q3 2020 Earnings 
28-Oct  Gilead Sciences Inc.  Q3 2020 Earnings 
28-Oct  Anthem Inc.  Q3 2020 Earnings 
28-Oct  Equinix Inc  Q3 2020 Earnings 
29-Oct  Apple Inc.  Q4 2020 Earnings 
29-Oct  Amazon  Q3 2020 Earnings 
29-Oct  Alphabet  Q3 2020 Earnings 
29-Oct  Facebook Inc.  Q3 2020 Earnings 
29-Oct  Samsung  Q3 2020 Earnings 
29-Oct  China Life Insurance Co Ltd (A)  Q3 2020 Earnings 
29-Oct  Comcast Corp. (Class A)  Q3 2020 Earnings 
29-Oct  Shopify Inc (A)  Q3 2020 Earnings 
29-Oct  Sanofi S.A.  Q3 2020 Earnings 
29-Oct  AB InBev SA-NV (Anheuser-Busch InBev)  Q3 2020 Earnings 
29-Oct  American Tower Corp.  Q3 2020 Earnings 
29-Oct  Starbucks Corp.  Q4 2020 Earnings 
29-Oct  Shell (Royal Dutch Shell)  Q3 2020 Earnings 
29-Oct  Volkswagen (VW) St.  Q3 2020 Earnings 
29-Oct  Stryker Corp.  Q3 2020 Earnings 
29-Oct  China Petroleum & Chemical (Sinopec) (A)  Q3 2020 Earnings 
29-Oct  China Life Insurance Co. Ltd.  Q3 2020 Earnings 
30-Oct  China Construction Bank Corp.  Q3 2020 Earnings 
30-Oct  AbbVie Inc  Q3 2020 Earnings 
30-Oct  ExxonMobil Corp. (Exxon Mobil)  Q3 2020 Earnings 
30-Oct  Chevron Corp.  Q3 2020 Earnings 
30-Oct  Honeywell  Q3 2020 Earnings 
30-Oct  PetroChina Co Ltd (A)  Q3 2020 Earnings 
30-Oct  Postal Savings Bank of China Registered Shs -A-  Q3 2020 Earnings 
30-Oct  TOTAL S.A.  Q3 2020 Earnings 
30-Oct  AUDI AG  Q3 2020 Earnings 
30-Oct  Altria Inc.  Q3 2020 Earnings 
30-Oct  Colgate-Palmolive Co.  Q3 2020 Earnings 
31-Oct  Berkshire Hathaway Inc.  Q3 2020 Earnings 
31-Oct  Industrial and Commercial Bank of China Ltd (A)  Q3 2020 Earnings 
31-Oct  Industrial & Commercial Bank of China Ltd.  Q3 2020 Earnings 
31-Oct  China Merchants Bank Co Ltd.  Q3 2020 Earnings 
31-Oct  Bank of China Ltd  Q3 2020 Earnings 

 

Amazon earnings – what to expect from Q2?

Amazon (AMZN) is due to report earnings July 30th and is set for another strong quarter of revenue growth, albeit costs are also increasing. The stock has jumped more than 60% YTD – can the rally continue?

First of all, the range of estimates for the second quarter is unusually wide and is extremely hard to navigate.

Amazon’s own Second Quarter 2020 Guidance

Net sales are expected to be between $75.0 billion and $81.0 billion, or to grow between 18% and 28% compared with second quarter 2019. This guidance anticipates an unfavourable impact of approximately 70 basis points from foreign exchange rates.

Operating income (loss) is expected to be between $(1.5) billion and $1.5 billion, compared with $3.1 billion in second quarter 2019. This guidance assumes approximately $4.0 billion of costs related to COVID-19.

What the analysts think of Amazon

Cowen 5-star analyst John Blackledge expects Amazon to deliver another strong quarter of growth with revenue and operating income at the high end of the guided range. The key drivers will be AWS, Advertising and an acceleration in e-commerce growth, which he says will post +29% growth vs +17% in Q2 2019.

Investors should be able to shrug off upwards of $4bn in Covid-related investments flagged in the last earnings release as likely weighing on Q2 EPS numbers. As ever with this kind of growth stock, EPS can be lumpy.

EPS will also be determined by AWS growth. Last quarter AWS revenues exceeded $10bn for the first time and whilst it generated 13.5% of total revenue, it delivered 77% of operating income. However as flagged in the past, the growth in AWS is slowing.

Overall analysts remain very bullish…

And hedge funds still like this stock…

Amazon share price: technical signals calling for pullback closer to 200-day moving average?

MACD crossover looks bearish, whilst the recent extension beyond the 200-day moving average has historically preceded a pullback. More broadly we are starting to see signs that the Nasdaq and tech stocks are retracing some gains after the run up in the second quarter.

Bank of England wheels for fresh charge

Central banks need to be marshalled like cavalry and stimulus like charges. If your stimulus doesn’t rout the enemy immediately, you can easily get bogged down in a melee in which you lose your advantage. The Federal Reserve keeps wheeling around and managing to rally troops for fresh charges – the corporate bond buying announcement this week was a fine example.

But increasingly the cavalry is wearying and the more this drags on the less impact the Fed’s repeated charges will have against the twin enemies of deflation and unemployment. Investors are clinging on to central bank stimulus like the Gordon Highlanders gripped the stirrups of the Scots Greys, as they rode down the French columns at Waterloo.

BoE preview: more QE on the way

The Bank of England will mount a fresh charge at the enemy formations today. Coordination is the name of the game: it needs to keep on top of the huge amount of issuance – borrowing – by the UK government. Wartime levels of debt means the BoE must expand the envelope to hoover it up or risk yields starting to rise and spreads widening.

So, the BoE is expected to increase QE by at least £100bn, but I think it may well opt for £200bn, or even more, given that even £100bn would only last it until the end of the summer and the real long-term economic problems are going to emerge later in the autumn. Interest rates will stay at 0.1% and expectations firmly anchored for the near future with forward guidance repeating that the Bank will do whatever it takes.

In order to achieve this, the government and central bank will need to coordinate throwing more money at the problem. Indications suggest furlough has been costly but only delayed a lot of the pain – a looming unemployment crisis will require further central bank support, which means more QE is likely.  And don’t talk about negative interest rates – Andrew Bailey mentioned it once, but I think he got away with it. Once you go negative, it’s very hard to get back to normal.

Whilst fresh forecasts are not due until August, the Bank will likely set a more defensive tone in terms of its expectations for the recovery. As noted here on May 7th (BoE: for illustrative purposes only) the Bank’s assumptions on economic recovery seem rather optimistic.

Sterling was steady ahead of the decision. GBPUSD held around the middle of its trading range, sitting on the 38.2% retracement of the bottom-to-top rally from the May low to the Jun high. Monday’s test of the 1.2450 (50% level) remains the support whilst the upside seems well guarded by the 200-day moving average just above 1.2690 that sparked the run lower since Tuesday.

Stocks on the back foot on fears of second Covid-19 wave

Wall Street stocks fell yesterday, except for tech, whilst European markets are on the back foot this morning as investors parse new cases in the US and China. The bulls lost energy as new hospitalisations in Texas due to Covid-19 rose 11% in the space of 24hrs. Several other US states are seeing rising cases that are a worry, albeit the kind of mass lockdown seen earlier this year appears an unlikely course of action. The economic damage is too high, and we are generally better equipped to handle it.

Worries about China are also important – markets had largely not bet on a second lockdown in the world’s second largest economy.

Overall, the market swings now suggest investors are reacting to various headlines about recovery, stimulus and new cases without much clear direction as to what it all means as a bigger picture. The major indices are right in the middle of recent trading ranges, sitting around the 50-60% retracements of the move from the multi-month highs at the start of last week to the swing lows this week.

Elsewhere, the US pulled out of talks with Europe over a global digital services tax, which raises the risk of individual countries taking their own steps, in turn sparking a fresh wave of US-EU tensions. An escalation of dormant trade wars is not out of the question if EU nations and the UK decide to tax US tech giants aggressively.

This comes of course after the EU launched an anti-trust probe into Amazon. In Europe, Germany passed additional fiscal stimulus to combat the pandemic costs. This morning Angela Merkel called on the EU to agree to the Covid fund before the summer break.

Crude steady on EIA inventories data

Crude prices were steady as they hold within the consolidation pattern printed since the start of June. WTI for August was holding around the $38 marker after the EIA inventories rose 1.2m barrels, vs expectations for a draw.

This matched the API data (+3.9m) and suggests there are more supply-side pressures at present, but OPEC data indicated demand not falling as much as previously expected in the second half of the year. Meanwhile it seems Iraq is working its way towards complying with OPEC+ cuts.

Amazon stock is at record highs, and hedge funds have never been more bullish

Tech companies surged to record highs yesterday, with Amazon stock closing 2% higher at just below $2,498.00 per share. The move helped fuel another 2% gain for the NASDAQ, which is now trading within 3% of February’s all-time high.

Amazon stock has rallied over 50% from the lows struck in mid-March and is up 32% since the start of the year. Gains have been fuelled by expectations that the company is well positioned to benefit from shifts in consumer behaviour due to the coronavirus pandemic.

Hedge funds bullish on AMZN stock

Hedge funds in particular have never been more bullish on AMZN stock.

Holdings increased by 8 million shares in Q1, with the number of bullish positions on AMZN amongst hedge funds rising 25% to 251. Amazon was the number one stock amongst hedge fund managers at the end of December and March.

Amongst those opening new positions in the first quarter were Jorge Lemann of 3G Capital Partners, Brad Gerstner of Altimeter Capital Management, and David Tepper of Appaloosa Management.

Amazon to benefit from shifts in consumer behaviour and company culture

Social distancing, lockdown measures, and supply shortages in bricks-and-mortar retailers drove consumers online during the first quarter, helping push Amazon sales up 18% internationally and 29% for North America. Q1 earnings, released at the end of April, showed revenue of $75.5 billion and earnings per share of $5.01 for the first three months of 2020; revenue was higher than estimates, while EPS fell short.

Amazon’s Web Services cloud computing business saw sales grow 33% during the period, surpassing the $10 billion mark for the first time. Sales growth continues to slow, but the shift to homeworking could see many more businesses needing to harness the power of the cloud to keep operations running, and this could be a long-term shift in business culture rather than a temporary measure.

Subscriptions to Amazon Prime were up as well; the combination of expedited shipping and video and music streaming proving an offer that is hard to resist while stuck at home. Advertising revenues also climbed, growing 33% to over $3.9 billion. Here, again, Amazon is set to benefit as businesses adapt to the pandemic; more marketing spend is being directed online as other channels, such as event sponsorship, dry up.

However, Amazon is known to spend big, and it looks like Q2 will be no exception. On the Q1 conference call, Jeff Bezos told investors that he expected to spend the $4 billion or more in estimated operating profit from Q2 on “Covid-related expenses getting products to customers and keeping employees safe”. The stock had fallen after hours, but fund managers are betting that the costs will help Amazon to operate more effectively under “new normal” conditions going forward.

What do Wall Street analysts say about Amazon stock?

Amazon holds a “Strong Buy” rating amongst Wall Street analysts, with a price target of $2,673.17 representing a 7% upside. Only one of 41 analysts covered by our Analyst Recommendations tool has a “Sell” rating on the stock.

FTSE 100 completes 400pt round trip this week

Stocks turned broadly weaker yesterday as investors reacted to some stinky data from Europe and the US. Overnight Asian data has also had the whiff of soft cheese that’s been left out too long. Stocks are softer once more, though most of Europe is on holiday so the focus is on London until New York opens.

The S&P 500 eased back almost 1% to relinquish the 61.8% retracement at 2934 but closing at 2912 it finished well off the lows. Both the Dow and the S&P 500 recorded their best months since 1987 as equity markets rebounded on central bank largesse, government bailouts and the outperformance of US tech over just about anything else. The tech-heavy Nasdaq was up 19% for the month and is nearly flat for the year. It’s shame we don’t really have any tech firms left, as nothing else is growing.

The FTSE 100 endured a terrible session, finishing 3.5% weaker as Shell tumbled, just holding onto 5900 and the 38.2% retracement of the drawdown. At Friday’s open the index shipped another 2% to break under 5800 and move back to where it opened on Monday at 5,752, completing a 400-pt round trip this week. This will be a level bulls will seek to defend. RBS shares rallied 3%, whilst Lloyds fell 4%. RBS said profits fell 59% to £288m as it set aside £800 for loan losses. But revenues were down just 1.6% at £3.2bn – Lloyds reported an 11% decline in revenues. Something doesn’t look right.

South Korean exports declined 24.3%, the worst slump in 11 years. Japanese factory activity fell to its lowest since 2009. The AIG Australian PMI dropped by 17.9 points to 35.8 in April, its largest month-to-month fall in the 28 years since it began. New Zealand consumer confidence fell 21 points in April to 84.8, where it troughed in 2008. Today’s main event will be the US ISM manufacturing PMI, which is seen declining to 36.7 from 49.1 a month ago.

Donald Trump is threatening new tariffs on China in retaliation for the coronavirus – trade tensions back on the agenda won’t be terribly positive for risk appetite but for now remains something on the margins. But the US and Europe will demand China steps up – if we talk about what permanent changes are taking place or what trends have accelerated sharply, then deglobalisation has to be at the forefront.

Apple shares declined in extended trading after it reported a slowdown in revenue growth and declined to offer guidance for the June quarter. It will however continue to buy back stock and increased its share repurchase programme by $50bn. Revenues from iPhones declined 7% to $29bn, but Services revenues rose 16% to $13.3bn. Overall revenue growth was down to +0.5% vs 9% in the previous quarter.

Amazon shares also dipped after hours as it warned massive costs incurred because of Covid-19 could lead it to a first quarterly loss in 5 years. Amazon always spends big when required and is prepared to make the investment at the expense of short-term earnings per share metrics.

Despite these results, both Apple and Amazon are in the camp where you think they will be thriving under the new world order. More smartphone time – yes, more home delivery – yes, more cloud servers required – yes.

Crude oil continues to find bid with front month WTI running to $20 before dropping back to $19. Crude prices are stabilising as OPEC+ cuts begin to take effect this month, potentially easing the supply-demand imbalance. Markets are also more confident about US states reopening for business, which will fuel demand for crude products like gasoline. Texas oil regulators don’t seem prepared to mandate production cuts, with chairman Wayne Christian against plans for 1m bpd reduction.

In FX, yesterday saw a pretty aggressive 4pm fix as we approached the month end. GBPUSD made a big-figure move and rallied through 1.25 and beyond 1.26 but turned back as it approached the Apr 14th swing high at 1.2650 and the 200-day SMA. It looked an easy fade but the euro also spiked but has held its gains, with EURUSD trading at 1.0960, having briefly dipped to 1.0830 after the ECB decision.

Charts

GBPUSD fades after hitting near-term resistance

EURUSD – clears 50-day SMA, looking to scale Apr 14th high

Week Ahead: Bumper week with FOMC, ECB, FAANGS & GDP

Welcome to your guide to the week ahead in the markets. Remember you can now find all the key events affecting the markets in our new Events Calendar in the platform.

European Central Bank rate decision

Last week ECB president Christine Lagarde allegedly told EU leaders during a private video summit that the bloc could be facing a drop in GDP of up to 15%, and that their efforts to contain the outbreak have been both too little and too late. Monetary policy can only go so far, but the ECB does still have room to manoeuvre. Expansion of QE will likely be the first port of call if policymakers decide more needs to be done, but minutes from the March 18th meeting show that cutting rates was floated, too.

FOMC decision – has the Fed got any ammunition left?

What’s left for the Federal Reserve to do? Rates have been slashed to zero, and that’s where futures markets see them staying well into 2021 at least. And it’s hard to announce more QE when you’ve already committed to unlimited asset purchases. The key question is what the FOMC has left in reserve in case its vast stimulus measures aren’t enough. Will policymakers set negative rates? Will they buy corporate stocks? Will they explicitly target yields on government bonds? Markets will be looking for reassurance that policymakers still have plenty of ammunition left. 

Bumper week of earnings with Apple, Alphabet, Facebook reporting 

Netflix has already reported earnings, but this week sees the rest of the FAANG group offering up their quarterly figures. Tesla and Microsoft are also amongst the heavy hitters providing updates this week. 

US, Eurozone GDP 

We’ve seen piecemeal evidence of the impact COVID-19 has had on the US and Eurozone economies thanks to industrial data, PMIs, and business sentiment figures. But now it’s time to get the full picture, as the US and Eurozone will both publish estimates of Q1 growth. It was initially believed that moderate growth in January and February would have softened the blow from social distancing and widespread lockdowns that went into effect in March. Now the consensus is that the recession expected in Q2 arrived much earlier. Estimates vary wildly, but no matter how dire the results, the figures for Q2 are likely to be way worse.

Heads-Up on Earnings

After-Market   28-Apr   Alphabet – Q1 2020  
After-Market   29-Apr   Microsoft – Q3 2020  
After-Market   29-Apr   Facebook – Q1 2020  
After-Market   29-Apr   Tesla – Q1 2020  
After-Market   30-Apr   Apple – Q2 2020  
After-Market   30-Apr   Amazon – Q1 2020 

Key Events

03.00 UTC   28-Apr   BOJ Rate Decision & Outlook Report  
07.00 UTC  28-Apr  Spanish Unemployment Rate Q1 
14.00 UTC   28-Apr   US CB Consumer Confidence  
01.30 UTC   29-Apr   Australia Quarterly CPI  
12.00 UTC   29-Apr   Germany Preliminary CPI  
12.30 UTC   29-Apr   US Advance GDP QoQ  
14.30 UTC   29-Apr   US EIA Crude Oil Inventories  
18.00 UTC   29-Apr   FOMC Rate Decision  
09.00 UTC   30-Apr   Eurozone Flash GDP  
11.45 UTC   30-Apr   ECB Rate Decision and Statement  
12.30 UTC   30-Apr   US Initial Jobless Claims  
14.30 UTC   30-Apr   US EIA Natural Gas Storage 

Week Ahead: Covid-19 earnings season, Amazon & Netflix to report

Amazon surged to a record high last week as markets bet that the company is well positioned to weather the coronavirus pandemic. Lockdown has forced even more consumers to switch to online shopping, and the surge in demand has seen Amazon go on a huge hiring spree, adding 100,000 new workers in March and announcing plans for another 75,000 hires. Cowen Analyst John Blackledge believes Amazon may have witnessed a surge in demand during March equivalent to its annual Prime Day members sale.

The tedium of lockdown is likely to have driven up subscription rates for its video and music streaming services and its Kindle library as well. Guidance will show how sticky Amazon expects these new customers to be once lockdown measures are lifted.

Remember, you can follow the biggest earnings season stories with our daily coverage on XRay.

Netflix earnings

Streaming service Netflix is expected to reveal a huge surge in subscriber numbers when it reports earnings this week. Expectations that Netflix will continue to see its popularity surge over the coming months drove the stock to a new record high last week. Even after lockdown is over, the consumer shift towards streaming services is likely to remain, as social distancing and fear over a resurgence in COVID-19 cases keeps people away from cinemas – and going outdoors in general.

UK and US jobless data

There are plenty of predictions for the impact of the coronavirus pandemic upon the world’s leading economies, but markets continue to be hounded by fears that these might not be pessimistic enough. More labour market data from the UK and US this week could heighten or assuage those concerns.

In the UK, thanks to the government’s pledge to pay the wages of furloughed workers, the unemployment rate isn’t expected to climb more than a percentage point during 2020. In the US, economists believe 20 million Americans will file new jobless claims during April. A sharper or softer rise than expected in either of these metrics will cause markets to reprice their expectations that these forecasts will be met or exceeded.

Will markets focus on shape of recovery as PMIs slump?

Business activity across the Eurozone and the UK plunged to record lows last month, and we know there’s more bad news to come. The Eurozone composite could drop as low as 20 during April, with the UK reading predicted to slump to 21. The real question is whether markets believe the recovery from this downturn will be a rapid one – confidence in a sharp pullback could soften any negative reaction to another round of gloomy PMIs, assuming markets are in an optimistic mood.

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