Week Ahead: Big tech earnings to drive pre-election volatility

Week Ahead

It’s set to be a volatile week for US markets as earnings season continues on Wall Street with Big Tech reporting. Apple, Amazon, Microsoft, Alphabet and Facebook are among the biggest names delivering their quarterly updates. Meanwhile central banks are in action aplenty with the Bank of Japan, Bank of Canada and European Central Bank all holding policy meetings. And we of course countdown to November’s US presidential election with all eyes on the Vix. 

Big Tech Earnings 

It’s a massive week for corporate earnings and the focus will undoubtedly fall on  the FAANGs with Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) all set to report quarterly earnings figures on Thursday. Earnings come amid scrutiny on big tech as the US Department of Justice opened an antitrust case against Google’s parent company, Alphabet, which focuses on agreements it has made with handset manufacturers and carriers to be the default search engine on new phones. Whilst investors have shrugged this off so far, earnings may well provide fuel for greater volatility in the stock. 

Meanwhile there are fears that the case could create headwinds for Apple’s services business. The DOJ said Apple earns between $8 billion and $12 billion from Google, which would equate to between 17% and 26% of Apple’s revenues from Services last year. Apple recently released its iPhone12 but increasingly the reason for the stock’s higher multiples is about the ecosystem and Services revenues. Nevertheless, analysts remain bullish on these tech giants and they remain among the biggest winners YTDMicrosoft reports on Tuesday and there are dozens of large cap stocks reporting over the next few days. 

ECB  

With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday. Markets are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices. The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting. The threat of a double dip recession is real, with Christine Lagarde saying recently that the resurgence of the virus is a clear risk to the economy. Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December. 

To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann, said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.” 

Meanwhile there are also meetings of the Bank of Japan and Bank of Canada taking place this week. 

Economic Data 

The advanced reading for US GDP growth in the third quarter will be the highlight as markets look for clues to the pace and sustainability of the recovery.  The economy is expected growth in the region of 30% as businesses reopened following lockdowns. The Atlanta Fed’s forecast indicates the economy will have expanded by 35% on a quarterly basis – but this of course masks the real damage when it’s coming off the back of a 31% drop in Q2. The GDP reading comes at an opportune moment for Donald Trump who will be able to proclaim that the economy is on fire. 

Election Watch 

The final straight: polling data may not change much – the number of undecided voters has been small. Biden commands a strong national lead but in the key battlegrounds that will determine the result it’s tighter. We’re hosting a special pre-election live event on Nov 2nd to run through how the markets might react.  

Top Economic Data This Week

Open the economic calendar in the platform for a full list of events.

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 Earnings Reports This Week

Don’t forget to tune into our Daily Earnings Season Specials on XRay for more updates

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 

 

ECB: Pandemic focus

Forex

With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday.

Market participants are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices.

The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting and the assumptions for growth contained in the ECB’s September look out of step with reality.

Weakness in Friday’s PMIs highlight the concern among businesses, particularly in services. The threat of a double dip recession is real, and Christine Lagarde recently commented that the resurgence of the virus is a clear risk to the economy.

Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December – albeit it may choose to increase PSPP rather than PEPP – for the markets these acronyms won’t matter too much – it’s the size and duration of the liquidity injection that matters, not how it is presented.

Lagarde may drop some hints in the press conference to increasing PSPP/PEPP envelopes in December, but will not over-commit. Moreover, with progress on delivering on the fiscal side slow, the ECB will feel obligated to step up.

To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.”

As far as the currency goes (why else are we bothering?), the line in the sand for the central bank was 1.20 on EURUSD – a level that prompted chief economist Philip Lane to comment that “the euro-dollar rate does matter”.

Traders should pay attention to any nod to currency worries from Christine Lagarde – another run at 1.20 looks credible, particularly if there is a Democrat clean sweep in November’s elections as this is seen as a headwind for the dollar and likely positive for the euro due to better trade relations.

Fundamentally it will be more of the same from the ECB with it stressing it is ready to do more and the momentum is with the doves to ease more.

Meanwhile, there are also meetings of the Bank of Japan and Bank of Canada taking place this week.

Barclays beats and leads bank stocks higher

Morning Note

European markets rose in early trade on Friday after a better day on Wall Street in the previous session despite the usual mix of stimulus all talk and no trousers.

Financials led the way after Barclays reported better-than-expected quarterly results.

The FTSE 100 recovered 5,800 this morning after the S&P rallied 0.5% to 3,453 yesterday. A steepening yield curve boosted financials, while energy shares also rose firmly.

Yields are starting to look interesting again, especially at the long end, which is good for banks (see below chart).

Treasury maturity

Whilst central banks are keeping their thumbs on the front end, longer-dated bonds are moving, and this is creating the steepest curve we’ve seen for some time. A combination of massive expected issuance/Fed purchasing more assets and slow and steady recovery from the pandemic is in play.

Rising nominal yields would crimp gold but we await to see whether the vast increase in the money supply plus supply chain effects from Covid and deglobalisation start to feed into rising inflation and keep real yields negative.

A strong performance at the corporate and investment bank lifted Barclays to a significant Q3 pre-tax beat. Profits before tax of £1.15bn were about twice what was expected by the market. Much like its bigger Wall Street cousins the investment banking division is offsetting a weaker performance in the consumer bank.

Sticking with the investment bank was the best thing Barclays could have done.

Corporate and Investment Bank (CIB) income +24% to £9.8bn, up 24% driven by strong performance in trading. Consumer, Cards and Payments (CC&P) income –11% to £2.6bn, driven by lower balances, margin compression, and reduced payments activity.

The numbers really highlight what’s happening in the real economy. Barclays UK income –12% to £4.7bn reflecting lower interest rates and unsecured lending balances but improving from the Q2 ‘low point with net interest margins stable.

Group credit impairment charge of £0.6bn, up 32% versus prior year but down 63% versus prior quarter and less than the ~£950m expected. Shares rose over 4% in early trade and helped lift Lloyds, Natwest and HSBC +2-3% higher.

UK retail sales rose 1.5% in September and were 4.7% higher than a year ago. Ex auto and fuel was +6.4% yoy. However, consumer confidence is tumbling – the GfK survey fell 6pts to –31. The UK consumer is resilient, but with fresh lockdowns and the prospect of a long winter, retailers will find the going tough again.

There was a lift for travel stocks with news that popular tourist destinations, including the Canary Islands, Maldives, Mykonos and Denmark have been taken off the UK’s quarantine list. EasyJet +2% and TUI +3%. Carnival +5% yesterday in the US and +3% today in London amid reports that the No Sail Order will lapse at the end of the month with Trump having an eye on Florida jobs.

In the US, Gilead shares rose 7% in after-hours trade on news that its Remdesivir (Veklury) drug had won FDA approval for the treatment of Covid-19. Tesla was flat after earnings – shares may be affected today by a recall in China. Intel shares tumbled 10% after-hours as data centre sales were weaker than expected.

The company posted net income of $4.3 billion in Q3, or $1.02 a share, down more than 28% from a year ago.

It was like a different market yesterday from another time: Ford, American Airlines, Bank of America and General Electric rose 3-5%, while Apple fell 1%. Mattel +7% after-hours as parents splurged on toys to keep children entertained in the absence of being able to actually do things.

According to JPM, 70% of Stoxx600 companies have beaten EPS estimates, which is a ten-year high and probably tells us more about how much expectations had been lowered as much as it indicates a strong quarterly performance by European corporates. In FX land, cable was a cent off Wednesday’s highs at 1.3070 as the dollar put in a rally yesterday.

Election Watch

The debate won’t move the needle for determined voters. Polling shows Biden +7.9% nationally and +4.1pts in the battlegrounds. Betting odds are unchanged at 65/35 in favour of the Democrat. Even if the polls move before polling day, millions of ballots have already been cast.

Stocks move lower, IAG suffers dire quarter

Morning Note

European stocks fell and headed to break out of recent ranges with the downbeat mood attributed to the mix of fading stimulus hopes in the US and rising coronavirus cases and restrictions on this side of the pond, as well as the anticipated noise and volatility around the US election.

Whatever the catalysts for the reversal, we now need to see if there is a buy-the-dip mentality or whether this move lower builds momentum.

The FTSE 100 finally breached its range to the downside. Pressure had been building for some time around the 5780 region and yesterday’s weak finish opened the door to levels not seen since May. A retreat towards the 50% retracement around 5650 is possible. The S&P closed at the session low, declining 0.22% at 3,435 but retains the 21-day and 50day simple moving average support at 3,404.

IAG shares fell 2.5% after it reported Q3 revenues declined by 83% to €1.2 billion compared to €7.3 billion last year.

The airline operator reported a €1.3 billion loss before exceptional items compared to a €1.4 billion profit last year. Passenger traffic just isn’t coming through anything like as much as hoped back at the peak of the pandemic in April.

By now we should all be confidently planning trips again but the second wave has done two things: restricts our movement and killed confidence to book.

The capricious nature of quarantine rules has not helped. Management complains that initiatives designed to replace quarantine periods and increase customer confidence – like pre-departure testing and air corridor arrangements – have not been adopted quickly enough. Q4 capacity is being cut to no more than 30% of last year and management says they no longer expect to achieve cash flow breakeven from operations.

As far as stimulus goes it looks like neither side is particularly willing to go the extra mile but neither wants to be seen to have scuppered a deal just days before the election.

Meanwhile intensified Brexit talks are resuming today in London and both sides want a deal before the middle of November. Sterling rose sharply yesterday to above 1.31, clearing the 50-day SMA on its way to the highest level against the US dollar since the start of September.

Whilst partially down to a weaker dollar it also looks like traders are a little more confident of a deal.

Today we hear from Andrew Bailey, governor of the Bank of England, while UK Chancellor Rishi Sunak will later announce more support for businesses affected by the pandemic. US initial jobless claims on tap too – last week’s surprise jump could be repeated.

Social media stocks roared higher after a blowout quarter for Snap. Shares in Snap rose 28% and Twitter rose to the top of the S&P 500 with a gain of more than 8%. Facebook rose over 4% and Pinterest jumped 9% to a record high.

Meanwhile, shares in work-from-home stocks like Peloton and Zoom fell. There appears to be rotation going on from WFH stocks to digital advertising winners.

Tesla shares rose after-hours as the company reported its ‘best quarter in history’. It was a very good set of results and a fifth straight quarter of profits underlined that Tesla has made substantial progress over the last year. Revenues rose almost 40% thanks to record vehicle deliveries and net profit was +130% to $331m. Margins in the core automotive division rose 483bps to 27.7%.

WTI (Dec) retreated from $41.50 to $40.0 after a rise in gasoline stocks. The EIA said crude oil and distillate inventories fell, but the 1.9m build in gasoline stocks that undid sentiment as it indicated weaker demand from motorists. This was the biggest increase since May, while consumption of gasoline also declined.

Election Watch

The final Presidential debate takes place tonight. Biden’s lead nationally was cut to 7.5pts and stands at 4.2pts in the battleground states. By this stage four years ago Trump had narrowed the gap to 3.8pts.

Chart: Gold’s attempted breakout broke down around the 50-day SMA.

Cryptos rally on PayPal news, Sterling jumps on Brexit hopes

Commodities

Bitcoin rose to its highest level in over a year, hitting levels not seen since July 2019 after PayPal said it will enable cryptocurrencies on its platform.

Initially, it will allow users to buy, hold, and sell Bitcoin, Ethereum, Bitcoin Cash, and Litecoin in the PayPal wallet. It will also enable users to spend cryptocurrencies for purchases at its 26 million merchants worldwide.

It is hard to know for sure right now what it means, but because of PayPal’s sheer scale and reach I would think the development may be a potential game-changer in the mass use of cryptos, though of course there are many other barriers to its widespread consumer and business adoption.

Mainstreaming in this way should boost the usage case and this would tend to underpin renewed bullishness around the crypto space, though we are at pains to stress that nothing is certain when it comes to cryptocurrencies.

The news rekindled bullish spirits in the crypto space today.

Movements on Cryptocurrency.

Meanwhile, GBPUSD rallied through 1.3140 to reach its highest since September after some positive news around Brexit.

Cable has risen more than 2 big figures from yesterday’s lows so far, underlining the pair’s sensitivity to headlines right now.

There had been strength building all day and then news crossed the wires in the last few minutes that Brexit talks are to restart with the aim of a deal by November 13th.

Clearly in mind is the informal meeting of heads of state in Berlin scheduled for Nov 16th, by which point Macron, Merkel et al will want to have a text to sign off. There has definitely been a narrowing in the gap since the UK shut the door last Friday. This is a positive and indicates that a deal is still more likely than not, though we would be cautious about assuming anything at this stage.

Elsewhere, it’s been a rather downbeat day for equities in Europe.

The FTSE 100 is close to lows of the day and near the September lows around 5800 heading into the close, down -1.3% and not helped by sterling strength. Euro Stoxx 50 trips the middle of the range near 3,200, down -0.66%.

US equities have opened on a firmer footing with the S&P 500 +0.5% and the Nasdaq +0.7% and recovering 11,600. Snap shares +30% after a blowout quarter saw +18% y-o-y rise in users and +4% from the July quarter. More time at home has clearly left consumers spending more time on social media channels like Snap. Gold is firmer above $1,920 and facing important resistance at the 50-day SMA at $1,925.

Movement of the pound against the USD.

Stocks falter after Wall Street rallies, yields eye break out

Morning Note

European stocks were weaker on Wednesday morning after a mixed session the day before. The FTSE 100 hovered around the 5,900 level in early trade before retreating to 5,850.

US stocks rose in the prior session, with the S&P 500 recovering to 3,440 and the Nasdaq clearing 11,500 again. US Treasury yields rose, with the 10-year breaking to 0.82%, its highest in over 4 months.

Gold broke higher as the dollar weakened. WTI (Dec) was steady around the $41 level after the API reported a 584,000-barrel build in crude stocks vs a forecast 1.9-million-barrel draw. EIA data later expected to show a 0.5m build.

Both Democrats and Republicans say they’re making progress on stimulus talks, though the chances of a deal before the election still look very slim.

Brexit talks are still alive as the two sides put the weekend’s harrumphing behind them. Sterling was lifted by dollar weakness with GBPUSD moving to towards the top of the range at 1.30, but this was largely about the greenback softening. DXY took a 92 handle.

The spread of the virus in Europe and the response of governments is a clear weight on the market, whilst US stimulus and election risks are to the fore. We’re also in the midst of an earnings season. And then we can throw in Brexit into the mix – lots of reasons to chop sideways for a while longer.

The boom in new customers Netflix enjoyed in the first half of the year due to the pandemic and lockdowns faded in the third quarter. Earnings missed on the bottom line and fell short in terms of net subscriber additions. EPS of $1.74 was short of the $2.14 expected, though revenues of $6.44bn were a little better than anticipated.

The key though is the net subscriber adds, which fell to 2.2m vs more than 3.5m expected. For the fourth quarter, the company guided 6m net adds, short of the 8.8m added in Q4 2019.

Clearly, there has been, as Netflix told us, a significant pull forward in demand in the first part of the year. Shares fell 5% in after-hours trade.

Alphabet – the US Department of Justice filed an antitrust lawsuit accusing the Google parent of abusing market power in a landmark case.

This may create regulatory risk and overhang for the stock going forward until there is a resolution. Whilst it is much harder to really pin the same thing on some of the other big tech names, it is clear Alphabet has monopoly power over search. It’s hard to argue otherwise, though we are sure Alphabet’s lawyers will do their best. Investors are unconcerned about it – shares rose over 1%.

Tesla reports later today. The stock has soared around 450% this year as the company has driven sales and profits higher whilst also allaying concerns about its balance sheet. Investors are expecting strong earnings off the back of a record quarterly delivery number. Tesla delivered 139,300 vehicles in the third quarter and produced 145,036. This marked a significant uptick from the roughly 90,000 delivered in Q2.

Election Watch 13 days to go

Biden’s lead is diminishing but is still meaningful. Nationally, Biden’s lead has fallen to 8.6pts, whilst in the key battlegrounds it has come into just 4pts, which is getting close to margin for error territory. At this stage in 2016, Trump was 4.1pts behind Clinton in the swing states that matter.

Stocks drift lower, Netflix earnings on tap

Morning Note

European markets closed lower on Monday despite the firm open; the FTSE 100 ending –0.55% at 5,886 and the DAX off –0.41% at 12,855. The Euro Stoxx 50 declined 0.12% to 3,241. All are treading their well-worn ranges.

Wall Street had something of a drubbing after opening higher with a broad-based selloff leaving the S&P 500 and Nasdaq –1.6% lower and close to the lows of the day at the close. The S&P 500 sits comfortably above the 50-day SMA at 3,400 but another down day could test this. Futures point mildly higher this morning.

Softness is evident again today: Asian equities were mixed with Shanghai up and Tokyo down. European shares were broadly lower at the open but remain well above last week’s lows.

There wasn’t a huge lift for travel stocks despite Heathrow introducing one-hour Covid tests to enable passengers to fly in and out of the UK without needing to quarantine. IAG rose almost 2% but EasyJet and Ryanair fell. Initially it will only be available for flights to Hong Kong and Italy, which require pre-departure testing. However, it indicates that the world is slowly reopening and adapting.

In Washington, there are signs the two main parties are closer to achieving a pre-election stimulus package and are narrowing their differences.

Still, it looks like ‘fading stimulus hopes’ clearly did for stocks yesterday. House Democrat leader Nancy Pelosi’s self-imposed deadline for agreement expires today – the door of opportunity is barely even ajar.

Federal Reserve vice chairman Richard Clarida said more monetary and fiscal stimulus is required, another year for GDP to return to 2019 levels and even longer to achieve full employment. Christine Lagarde, the ECB president, echoed these comments by saying that the recovery in the eurozone would be set back by new restrictions to fight the disease.

The pound is steady despite threats of a no-deal exit from the transition period. Brexit no-deal commander-in-chief Michael Gove indicated that there is a wide gap between the sides however we know they are talking, and both the EU and UK want a deal. Michel Barnier said the EU could compromise with Britain and begin detailed discussions around the legal texts this week.

No one is walking away – it’s all part of the negotiations. GBPUSD was knocked back from the 1.30 resistance but sits comfortably above the 1.2860 support area around 1.2920 as of send time. Just a hint of weakness in early trade but still well within recent ranges.

Minutes from the Reserve Bank of Australia’s latest meeting showed rates could go lower than they are now.

Policy members discussed ‘the case for additional monetary easing to support jobs and the overall economy’ and specifically talked about ‘reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve’.

And whilst they cautioned that ‘the transmission of easier monetary policy had been impaired as a result of the restrictions on activity’, members felt it ‘reasonable to expect that further monetary easing would gain more traction than had been the case earlier’.

Asst governor Christopher Kent followed this up by saying there is room to cut rates further. The Aussie drifted lower with AUDUSD looking to the key horizontal support at 0.70 in view.

Oil got a lift as Saudi Arabia’s energy minister said OPEC+ will do “what is necessary” to rebalance the oil market. However, rising Covid cases is weighing heavily on demand forecasts and it will likely take more than mere jawboning to support the market.

Saudi Energy Minister Prince Abdulaziz bin Salman also noted that some countries were slow in compensating for past overproduction. WTI (Dec) couldn’t break the $41.50 resistance zone and retreated to take a $40 handle, still towards the top of the Sep-Oct range. API inventories later today – shut-ins along the Gulf of Mexico due to Hurricane Delta ought to see another drawdown.

Netflix earnings are on tap today. A big focus for the market will be the number of subscribers Netflix managed to add in the third quarter. Lockdowns around the world delivered a huge boost in the first half of 2020, with paid net subscriber additions soaring to 26m from 12m during the same period a year before.

The company has forecast 2.5m paid net adds for Q3 versus 6.8m in the prior year quarter as the surge in H1 likely pulled forward some demand from the second half of the year. However, this could be a very conservative estimate and Netflix could beat this number handsomely with growth outside the US seen improving off the back of some very successful local language releases. Netflix is getting good at ‘tamping down expectations’ so I expect guidance to be conservative and I think the market understands this.

Investors will also be looking at the expected cash burn as production schedules fill up again; the investment in content is both a cost but also seen as an important lever for Netflix in overcoming rivals in an increasingly competitive space. Spending on content is set to exceed $13bn this year and Netflix continues to borrow heavily – it raised $1bn in April and has over $15bn in long-term debt.

Goldman Sachs, which has previously noted that the company’s “massive content investments, global distribution ecosystem and improving competitive position will further drive financial results significantly above consensus expectations”, recently raised its price target on the stock to $670 from $600, citing better-than-expected Q3 results as a likely bull catalyst.

Election Watch – 14 days to go

Betting markets are narrowing – in the last week Biden’s chances have come in from 67 to 61, whilst Trump’s have improved from 33 to 40. Nationally Biden leads by 8.9% but polls in key battlegrounds are far tighter and tightening, with Biden’s lead down to 4.1%. At this stage in 2016 Trump was 5pts behind Hilary Clinton in the most important swing states. The final debate takes place on Thursday – can Trump deliver a blow to the Biden campaign?

Chart: Cable remains steady despite Brexit noise

European stocks rally; all the usual narratives

Morning Note

Vaccine hopes, stimulus rumours Brexit risks, earnings optimism– choose your narrative and apply it accordingly. The truth is the major indices are not really going anywhere right now.

Treasury yields have barely budged with 10s holding 0.77%, gold is holding a little above $1,900 and the dollar index sits in the middle of the 93.30-93.90 range.

WTI (Dec) trades above $41 ahead of today’s OPEC JMMC meeting which will discuss compliance with cuts. A full meeting at the end of Nov could see OPEC+ put on hold plans to scale back production cuts to 5.8m b/d from the current 7.7m.

European shares rose strongly at the open as investors put an unsatisfactory week behind them and indices continue to run over very well-trodden turf. The FTSE 100 pushed above 5950 as the bounce from last week’s test of the 5780 support zone held.

Wall Street was mixed, with the Dow up 0.4% and the Nasdaq down the same. The S&P 500 split the difference to be flat on the day, arresting three days of losses and finish back where it was the previous weekend. Futures indicate a higher open for US markets.

Rising case numbers across Europe is raising the risk of a second recessionary wave, but ample central bank support means we are holding the Sep-Oct range.

Meanwhile, in the US, House Democrat leader Nancy Pelosi said she is ‘optimistic’ about getting a pre-election stimulus deal agreed. Lots of chatter around this dictating some of the price action but not a lot of substance – what we do know is that some kind of stimulus package is on its way.

What we don’t know is whether the market is really reflecting this just yet. News on Friday that Pfizer will apply for emergency approval for its Covid-19 vaccine candidate is also underscoring a more positive view for equities this morning.

Rebounding growth in China helped lift sentiment a bit after the initial headline miss and gave bulls the excuse to drive up European stocks.

China GDP up 4.9%, which was a little short of the 5.2% expected but still shows solid recovery. Industrial production was up 6.9%.

Meanwhile, Japanese exports fell 4.9% year-on-year in September, vs –2.4% expected. But this was much better than the double-digit declines registered in each of the last six months.

Data on Friday showed US retail sales rose sharply in September with spending above the pre-pandemic level, but there are fears the lack of stimulus will start to bite.

A University of Chicago survey showed that pandemic relief funds worth $600 a week in additional jobless benefits boosted the savings of unemployed Americans, but the bulk of this had run out by the end of August.

Both the UK and EU are trying to revive faltering Brexit talks by saying the other needs to change approach. Michael Gove said on Sunday the door was ‘ajar’ for discussions should the EU be prepared to compromise.

GBPUSD rose at the start of the session to 1.29750 and approach near term resistance around 1.30. We saw last week how headlines and announcements can create significant volatility in sterling crosses but there is no real direction to GBP right now as traders wait for a clearer steer from the trade talks. Right now a skinny deal looks most likely.

Election Watch – 15 days to go

Early voting in the key state of Wisconsin starts Tuesday. Trump has to win this one to stand a chance. Biden’s national lead fell to 8.9pts, whilst in the battlegrounds Trump trails by 4.3pts, which is narrower than it has been for some time.

At this stage in 2016 Trump was 5pts behind in the top battlegrounds but still pulled off a surprise election night win. Fears of a contested election result have receded. Our friends at BlondeMoney crunched the numbers to forecast the outcome of the most important battles in the Senate race. (spoiler: it’s called 51/49 for the Democrats, in line with current polling)

Week Ahead: Tesla and Netflix top Q3 earnings season bill

Week Ahead

Earnings season on Wall Street revs up this week with Tesla due to report its Q3 results after delivering a record number of vehicles during the quarter. Meanwhile Covid top pick Netflix will update the market on its quarterly earnings performance and subscriber additions. Elsewhere the data is quite light this week with the focus on the flash PMIs on Friday. 

Tesla 

Tesla shares have soared around 450% this year as the company has driven sales and profits higher whilst also allaying concerns about its balance sheet. The company reports Q3 numbers on Wednesday, with investors expecting strong earnings off the back of a record quarterly delivery number. Tesla delivered 139,300 vehicles in the third quarter and produced 145,036. This marked a significant uptick from the roughly 90,000 delivered in Q2.  

Baird analyst Ben Kallo recently raised his price target on TSLA by 25%. In a note reiterating a neutral rating that he’s had on the stock since January, the analyst raised the price target to $450 from $360. He thinks the company can start to refocus on investment in growth following the stock’s rally.  

“We have experienced increased inbound interest in TSLA, particularly deciphering the bull/bear case from here,” Kallo wrote. “Interestingly, we have found investors increasingly focused on 2025+ blue-sky scenarios, in stark contrast to a few months ago when the primary focus was on the upcoming quarter.” Analysts remain split on Tesla, with 7 Buy, 10 Sell and 13 Hold/Neutral ratings. 

 

Netflix 

A big focus for the market will be the number of subscribers Netflix managed to add in the third quarter. Lockdowns around the world delivered a huge boost in the first half of 2020, with paid net subscriber additions soaring to 26m from 12m during the same period a year before. The company has forecast 2.5m paid net adds for Q3 versus 6.8m in the prior year quarter as the surge in H1 likely pulled forward some demand from the second half of the year. However, this could be a very conservative estimate and Netflix could beat this number handsomely. 

Investors will also be looking at the cash burn as production schedules fill up again; the investment in content is both a cost but also seen as an important lever for Netflix in overcoming rivals in an increasingly competitive space. “Netflix’s content library investment allowed the company to evolve from a platform to watch re-runs to a quality source of original content, and now a destination for some of the biggest movie premieres, which makes the service an essential part of any consumer entertainment bundle,” analysts at Cannacord said earlier this year. 

Goldman Sachs, which has previously noted that the company’s “massive content investments, global distribution ecosystem and improving competitive position will further drive financial results significantly above consensus expectations”, recently raised its price target on the stock to $670 from $600, citing better-than-expected Q3 results as a likely bull catalyst.  

Don’t forget to tune into our Daily Earnings Season Specials on XRay for more updates

Economic data 

Global economic data is rather thin on the ground. The focus will be on earnings season on Wall Street to provide a steer for markets. As just about the only country expected to growth this year, China’s GDP, industrial production and fixed asset investment numbers due on Monday will help gie the markets some direction early in the week. UK retail sales and inflation numbers will be parsed for any clues as to whether the Bank of England might take interest rates negative, after it sent a letter to banks asking for their readiness for taking rates below the zero-lower bound. Friday sees the release of the flash manufacturing and services PMIs for the US, UK, Eurozone, Japan and Australia. These will help show whether the reopening momentum is fading as quickly as bears fear. 

US Election Watch 

Finally, investors will need to keep a close watch on the US elections, with the narrative of late focusing on a Blue-wave victory for Democrats that could unleash a flood of fiscal stimulus on to the market. Polling data has shown Joe Biden with a healthy lead over Donald Trump in the polls, however his lead in the key battleground states that will decide the election is a lot narrower. Moreover, Trump was actually doing worse at this stage four years ago when we look at the most important swing states. The race for the Senate is taking on extra interest given the assumption that Biden will triumph – a Republican Senate could seriously hamper reform efforts. Expect volatility to increase as the election nears, but as our friends at BlondeMoney pointed out last week, fears of a disputed result may be overblown.

 

Top Economic Data This Week

Date  Event 
Oct 19th  China GDP, fixed asset investment, industrial production 
Oct 19th  BOC business outlook survey 
Oct 20th  RBA meeting minutes 
Oct 21st  UK CPI inflation 
Oct 21st  Canada CPI, retail sales 
Oct 21st  US crude oil inventories 
Oct 21st  Fed Beige Book 
Oct 22nd  German Gfk consumer climate 
Oct 22nd  US weekly initial jobless claims 
Oct 22nd  US CB leading index 
Oct 22nd  Nat gas storage 
Oct 22nd  New Zealand CPI inflation 
Oct 23rd  Flash PMIs – AUS, EZ, Japan, UK, US 
Oct 23rd  UK retail sales 

 

Top Earnings Reports This Week

Don’t forget to tune into our Daily Earnings Season Specials on XRay for more updates

Date  Company 
Oct 20th   Procter & Gamble 
Oct 20th   Netflix 
Oct 21st  Tesla 
Oct 21st  Verizon 
Oct 22nd  Amazon* 
Oct 22nd  Intel 
Oct 22nd  Coca-cola 
Oct 22nd  AT&T 
Oct 21st   NextEra Energy 
Oct 20th   Lockheed Martin  
Oct 23rd  American Express 
Oct 23rd  Daimler 
Oct 21st  Biogen 
Oct 19th   Philips 
Oct 20th   UBS 
Oct 20th   Snap (Snapchat) 
Oct 19th   IBM 
Oct 22nd  Valero Energy 
Oct 20th   Vinci 
Oct 20th   Reckitt Benckiser 
Oct 21st   Countrywide 
Oct 21st   William Hill 
Oct 21st   Metro Bank 
Oct 21st   Centamin 

*Slated for this date 

 

 

Race for the Senate: The Key Battlegrounds

US Presidential Election

As this election cycle enters the final stretch, the battle for the upper chamber will become increasingly prominent. No matter who resides in the White House come 2021, the success or failure of their term will largely rest on the Senate’s shoulders.

Here, we will take each of the competitive races in turn, and seek to give an indication of what to expect on election night. As it stands, the Democrats are likely to retain 45 seats and Republicans 44, with 11 key races deciding the balance of power.

Georgia 1: Perdue vs Ossoff

  • The incumbent Republican is currently 2.3% ahead, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Perdue a 72% chance of re-election
  • Ossoff set a Georgia record for the month of August, raising $4.7 million
  • Overall, whilst it is likely to be far closer than FiveThirtyEight appears to suggest, given a recent tightening of poll numbers, the Republicans have the edge in this race

Iowa: Ernst vs Greenfield

  • The incumbent Republican is down by 4.8%, according the RealClearPolitics polling averages
  • FiveThirtyEight gives the Democratic challenger a 53% chance of victory
  • Thursday night’s debate could well boost Greenfield’s chances of success after her opponent was unable to recall the break-even price of soybeans – a cardinal sin in Iowa politics!
  • Overall, whilst this race may be one of the closest in the cycle, the momentum is against Ernst and the Republicans.
  • The Democrats will re-take the Senate seat they lost in 2016

Maine: Collins vs Gideon

  • The Democratic challenger in this race is up by 4.2%, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Collins’ a 37% chance of a fifth term
  • This race has turned into a referendum on Senator Collins, with her record under scrutiny from the very beginning
  • The incumbent’s troubles have been exacerbated by the fundraising juggernaut established by her Democratic challenger, who has outraised Collins by $7 million this election cycle
  • Undoubtedly another close race. However, Collins has failed to shed the negativity surrounding her actions during the Kavanaugh hearings and will be punished for it on November 3rd. A second Democratic pick up

Michigan: James vs Peters

  • The Democratic incumbent in this race is up by 5.1%, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Peters a 79% chance of re-election
  • The Republican challenger here is likely to outperform President Trump on November 3rd, and has managed to maintain fundraising parity with his opponent thus far
  • Despite this, the Democrats are highly favoured to retain this seat, given the President’s poor polling at the top of the ballot

North Carolina: Tillis vs Cunningham

  • The Republican incumbent is down by 3.9% here, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives the Democrats a 65% chance of picking up this seat
  • In a bizarre turn of events this month, the Democratic challenger was embroiled in a sexting scandal, and subsequently saw his poll numbers increase healthily – yes really
  • Given both the position and direction of recent polling, the Democrats are the likely winners here. Tillis could still stage a comeback though, if he were to conjure up a sex scandal before November 3rd and benefit from the same strange phenomenon that has helped his opponent…!

South Carolina: Graham vs Harrison

  • Polling in this race has been very erratic, and so a polling average is difficult to produce. The most recent polling available has Graham up by 6%, although this had been preceded by a succession of polls which had the race tied
  • FiveThirtyEight gives the incumbent Republican a 77% chance of victory
  • This race has seen gaffe after gaffe on the Republican side, with Senator Graham referring to ‘the good old days of segregation’ in a recent Senate hearing and breaking federal law by soliciting donations from Capitol Hill
    Despite Graham trying his very best to lose this race, the pro-Republican demographics in the state will see him crawl over the line

Arizona: McSally vs Kelly

  • The Democratic challenger is up by 8% in this race, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Kelly an 80% chance of victory
  • This race is especially important, given that it is a special election. This means that the victor will not have to wait until January to be sworn in and could change the balance of power in the Senate within weeks of election day.
  • The Democrats have had a sizeable lead in this race from the beginning, despite McSally’s quasi-incumbency – another Democratic pick up

Colorado: Gardner vs Hickenlooper

  • Polling in this state has been infrequent, but has shown consistently large leads for the Democratic challenger
  • FiveThirtyEight gives the incumbent Republican a 21% chance of retaining his seat
  • The Cook Political Report recently shifted this race from ‘toss up’ to ‘lean democratic’
  • Everything appears to point towards another Democratic pick up here

Montana: Daines vs Bullock

  • The Republican incumbent is up by 3.3% here, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives him a 68% chance of retaining this seat
  • This race would usually not be competitive, but the Democratic challenger is a former two-term Governor of the state. Having won state-wide elections twice before, this is now on the Democratic hit list, albeit on the more ambitious end.
  • This is another race whereby the in-built Republican advantage is likely to prove too much, especially given that we are in a Presidential election year. A closer-than-normal election, but Republicans will retain.

Alabama: Tuberville vs Jones

  • The Republican challenger here is up by double digits in many polls
  • FiveThirtyEight gives Tuberville a 75% chance of victory
  • The fact that the Democrats won this seat in the first place was due to allegations of sexual assault made against the Republican nominee. Even so, Jones only won that election by 1.5%.
  • Having taken the bold strategy of nominating a candidate not accused of sexual assault this time around, the Republicans will be rewarded at the ballot box – a Republican pick up.

Georgia 2: Loeffler vs Collins vs Warnock vs Liberman

  • This race is complicated by the fact that it is a special election, and that no candidate is likely to receive 50% of votes cast. This means that a run-off is highly likely, which would take place on January 5th.
  • FiveThirtyEight gives the Republican candidate (whoever that may be) a 51% chance of victory in January
  • This race is highly unpredictable, given that four candidates are currently in the running. If forced to make a call, Republicans just about have the edge in this race. The special election will take place as a standalone, without the pulling power of a Presidential race. Turnout will fall and the Republicans will squeak by. However, if Trump is defeated in November, and does a lot of controversial things on his way out, it could easily swing this race for the Democrats.

Overall: Democrats 51 Seats Republicans 49 Seats

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under License no. 092/08 and FSCA under Licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (BVI) Limited (“TTMBVI”) Regulated by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

Redirigir