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 

 

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 

 

 

Week Ahead: Banks get Q3 earnings season underway, US presidential election watch

Week Ahead

The start of Q3 earnings season is sure to bring heightened volatility this week, but what about the second showdown between Trump and Biden? The President’s coronavirus diagnosis seems to have pushed more undecided voters into Biden’s camp – it doesn’t like there will be a debate but we are looking at ongoing developments in the campaign.

US presidential election

Catching Covid-19 hasn’t done Trump any favours in the US election polls, with Biden almost 10 points ahead in our election poll tracker at the time of writing. His lead in the top battlegrounds has come down to 4.6pts. Trump trailed Hilary Clinton by 5.1pts in the key battleground states at this stage in 2016, but we should note there are fewer undecided voters this time. Latest betting odds imply 65% chance of a Biden win. 

Banks get Q3 earnings season underway 

The start of Q3 earnings season will add even more volatility to the mix this week. Banks are the first in focus: Citigroup and JPMorgan get things going on October 13th, while Bank of AmericaGoldman Sachs and Wells Fargo are due to report on the 14th. Morgan Stanley reports on Oct 15th. 

In Q2 banks saw a surge in trading revenue that helped to offset large increases in provisions for loan losses. JPM, Goldman Sachs, Citi, Morgan Stanley and Bank of America posted their best combined revenue – $33 billion – in a decade. 

At the time, we argued that investors need to ask whether the exceptional trading revenues are all that sustainable, and whether there needs to be a much larger increase for bad debt provisions. 

There are some doubts over whether the jump in trading revenue continued in Q3 – Jamie Dimon expected it to halve. Bad loan provisions, on the other hand, could go much higher. 

Chief market analyst Neil Wilson has outlined some key questions for banks this earnings season. 

Bank Q3 earnings expectations 

(source: Markets.com) 

Bank  Forecast Revenues (no of estimates) 

  

Forecast EPS (no of estimates) 

  

BOA  $20.8bn (8)  $0.5 (23) 
GS  $9.1bn (15)  $5 (21) 
WFG  $17.9bn (17)  $0.4 (24) 
JPM  $28bn (19)  $2.1 (23) 
MS  $10.4bn (15)  $1.2 (20) 
C  $18.5bn (17)  $2 (21) 

Economic data overshadowed by earnings and election focus? 

This week’s economic data may be overlooked given the focus on corporate America and the second Presidential Debate. 

We’ll be watching labour market updates from the UK, Australia and the US this week, along with sentiment and production data from the Eurozone. 

US inflation, retail sales and the University of Michigan Consumer Sentiment index will also be in focus, although these would have to do a lot to make waves, given how far inflation has to rise to prompt the Fed to act now it has adopted AIT.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

17.00 UTC 12-Oct Blonde Markets
18.00 UTC 13-Oct Webinar: Technical Indicators
09.00 UTC 13-Oct Earnings Season Daily
14.00 UTC 14-Oct Asset in Focus: Weekly Gold Forecast
17.00 UTC 15⁠-⁠Oct Election2020 Weekly

Top Earnings Reports this Week

Pre-Market 13-Oct Johnson & Johnson – Q3 2020
Pre-Market 13-Oct JPMorgan Chase & Co – Q3 2020
Pre-Market 13-Oct Citigroup – Q3 2020
Pre-Market 13-Oct BlackRock – Q3 2020
Pre-Market 14-Oct UnitedHealth – Q3 2020
Pre-Market 14-Oct Bank of America – Q3 2020
Tentative 14-Oct Goldman Sachs – Q3 2020
Pre-Market 15-Oct Morgan Stanley – Q3 2020
Pre-Market 15-Oct Walgreens Boots Alliance – Q4 2020

Key Events this Week

Watch out for the biggest events on the economic calendar this week. A full economic and corporate events calendar is available in the platform.

06.00 UTC 13-Oct UK Unemployment Rate / Claimant Count Change
09.00 UTC 13-Oct Eurozone / German ZEW Economic Sentiment
12.30 UTC 13-Oct US CPI
09.00 UTC 14-Oct Eurozone Industrial Production
00.30 UTC 15-Oct AU Employment Change / Unemployment Rate
12.30 UTC 15-Oct US Weekly Jobless Claims
14.30 UTC 15-Oct US EIA Natural Gas Storage Report
15.00 UTC 15-Oct US EIA Crude Oil Inventories Report
12.30 UTC 16-Oct US Retail Sales
14.00 UTC 16-Oct US Michigan Consumer Sentiment

Banks set to kick off US Q3 earnings season

Equities

The S&P 500 rose 8.5% to 3,363 over the third quarter, having hit an all-time of 3580 at the start of September, with an intraday peak at 3588. The market faced ongoing headwinds from the pandemic, but risk sentiment remained well supported through the quarter by fiscal and monetary policy.

A pullback in September erased the August rally but was largely seen as a necessary correction after an over-exuberant period of speculation and ‘hot’ money into a narrow range of stocks.

Q3 earnings come at important crossroads: Expectations for when any stimulus package will be agreed – and how big it should be – continue to drive a lot of the near-term price action, though the market has largely held its 3200-3400 range.

Elevated volatility is also expected around the Nov 3rd election. But next week we turn to earnings and the more mundane assessment of whether companies are actually making any money.

Banks kick off Q3 earnings season

Financials are in focus first: Citigroup and JPMorgan kick off the season formally on October 13th with Bank of America, Goldman Sachs and Wells Fargo on the 14th. Morgan Stanley reports on Oct 15th, In Q2, the big banks reported broadly similar trends with big increases in loan loss provisions offset by some stunning trading earnings.

Wall Street beasts – JPM, Goldman Sachs, Citi, Morgan Stanley and Bank of America – posted near-record trading revenues in the second quarter with revenues for the five combined topping $33bn, the best in a decade. At the time, we argued that investors need to ask whether the exceptional trading revenues are all that sustainable, and whether there needs to be a much larger increase for bad debt provisions.

Meanwhile, whilst the broad economic outlook has not deteriorated over the quarter, it has become clear that the recovery will be slower than it first appeared. Moreover, during Q3 the Fed announced a shift to average inflation targeting that implies interest rates will be on the floor for many years to come, so there is little prospect of any relief for compressed net interest margins.

Meanwhile there is growing evidence of a real problem in the commercial mortgage-backed securities (CMBS) market as new appraisals are seeing large swatches of real estate being marked down, particularly in the hotels and retail sectors.

At the same time, the energy sector has gone through a significant restructuring as we have seen North American oil and gas chapter 11 filings gathering pace through the summer as energy prices remained low. There is a tonne of debt maturing next year but how much will be repaid?

Key questions for the banks

  • Did the jump in trading revenues in Q2 carry through in Q3? Jamie Dimon thought it would halve.
  • On a related note, did the options frenzy in August help any bank more than others – Morgan Stanley?
  • Have provisions for bad loans increased materially over the quarter?
  • How bad are credit card, home and business loans?
  • And how bad is the commercial property sector, especially hotels and retail as evidence from the CMBS market starts to look very rocky?
  • How are bad debts in oil & gas looking?
  • How are job cuts helping Citigroup lower costs; how will its entry into China make a difference to the outlook?
  • How does Wells Fargo manage without an investment arm to lean on? So far it’s been a bit of a mess.
  • Was Warren Buffett right to cut his stake in Wells Fargo and some other US banks? Buffett pulled out airlines first then banks.
  • What do banks think of never-ending ZIRP and does the Fed’s shift affect forecasts at all?
  • How is Morgan Stanley’s wealth management division cushioning any drop in trading revenues?
  • What progress on Citigroup’s risk management system troubles?

Q2 earnings recap

JPMorgan beat on the top and bottom line. Revenues topped $33.8bn vs the $30.5bn expected, whilst earnings per share hit $1.38 vs $1.01 expected. The range of estimates was vast, so the consensus numbers were always going to be a little out.

The bank earned $4.7bn of net income in the second quarter despite building $8.9 billion of credit reserves thanks to its highest-ever quarterly revenue. Loan loss provisions were $10.5bn, which was more than expected and the quarter included almost $9bn in reserve builds largely due to Covid-19.

The consumer bank reported a net loss of $176 million, compared with net income of $4.2 billion in the prior year, predominantly driven by reserve builds. Net revenue was $12.2 billion, down 9%. Credit card sales were 23% lower, with average loans down 7%, while deposits rose 20% as consumers deleveraged.

The provision for credit losses in the consumer bank was $5.8 billion, up $4.7 billion from the prior year driven by reserve builds, chiefly in credit cards.

Trading revenues were phenomenal, rising 80% with fixed income revenues doubling. Return on equity (ROE) rose to 7% from 4% in Q1 but was still well down on the 16% a year before. ROTE rose to 9% from 5% in the prior quarter but was down from 20% a year before.

Citigroup EPS beat at $0.50 vs the $0.28 expected. Trading revenues in fixed income rose 68%, and made up the majority of the $6.9bn in Markets and Securities Services revenues, which rose 48%. Equity trading revenue dipped 3% to $770 million. Consumer banking revenues fell 10% to $7.34 billion, while net credit losses, jumped 12% year over year to $2.2 billion. Net income was down 73% year-on-year.

Since then the bank has offloaded its retail options market making business, leaving Morgan Stanley (reporting Oct 15th) as the major player left in this market. We await to see what kind of impact the explosion in options trading witnessed over the summer had on both. ROE stood at just 2.4% and ROTE at 2.9%.

Wells Fargo – which does not have the investment banking arm to lean on – increased credit loss provisions in the quarter to $9.5bn from $4bn in Q1, vs expectations of about $5bn. WFG reported a $2.4 billion loss for the quarter as revenues fell 17.6% year-on-year.

CEO Charlie Scharf was not mincing his words: “We are extremely disappointed in both our second quarter results and our intent to reduce our dividend. Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter, which drove the $8.4 billion addition to our credit loss reserve in the second quarter.”

Bank of America reported earnings of $3.5 billion, with EPS of $0.37 ahead of the $0.27 expected on revenues of $22bn. Its bond trading revenue rose 50% to $3.2 billion, whilst equities trading revenue climbed 7% to $1.2 billion. But the bank increased reserves for credit losses by $4 billion and suffered an 11% decline in interest income.

Return on equity (ROE) fell to 5.44% from 5.91% in the prior quarter and was down significantly from last year’s Q2 11.62%. Return on tangible equity (ROTE) slipped to 7.63% from 8.32% in Q1 2020 and from 16.24% in Q2 2019.

Morgan Stanley was probably the winner from Q2 as it reported net revenues of $13.4 billion for the second quarter compared with $10.2 billion a year ago. Net income hit $3.2 billion, or $1.96 per diluted share, compared with net income of $2.2 billion, or $1.23, for the same period a year ago.

Wealth Management delivered a pre-tax income of $1.1 billion with a pre-tax margin of 24.4%. Investment banking rose 39%, with Sales and Trading revenues up 68%. MS managed to increase its ROE to 15.7%, and the ROTE to 17.8% from respectively 11.2% and 12.8% in Q2 2019.

Goldman Sachs reported net revenues of $13.30 billion and net earnings of $2.42 billion for the second quarter. EPS of $6.26 destroyed estimates for $3.78. Bond trading revenue rose by almost 150% to $4.24 billion, whilst equities trading revenue was up 46% to $2.94 billion. ROE came in at 11.1% and ROTE at 11.8%.

Expectations

(source: Markets.com)

Bank Forecast Revenues (no of estimates)

 

Forecast EPS (no of estimates)

 

BOA $20.8bn (8) $0.5 (23)
GS $9.1bn (15) $5 (21)
WFG $17.9bn (17) $0.4 (24)
JPM $28bn (19) $2.1 (23)
MS $10.4bn (15) $1.2 (20)
C $18.5bn (17) $2 (21)

 

Shares

None have really managed to match the recovery in the broad market but valuations are compelling.

Goldman trading either side of 200-day EMA

Wells Fargo can’t catch any bid

Bank of America bound by 50-day SMA

Citigroup still nursing losses after reversal in September

JPM breakouts consistently fail to hold above 200-day EMA

Week Ahead: FOMC minutes, Walmart earnings, next PMI round in focus

Week Ahead

US discounters Walmart and Target, and home improvement retailers Home Depot and Lowe’s report their earnings this week. With the exception of Target, these stocks have dramatically outpaced the S&P 500 this year. The global monetary policy outlook also gets an update this week thanks to minutes from the FOMC, ECB, and RBA, while flash PMIs for August will help shape the Q3 growth outlook.

Earnings: Walmart, Target, Home Depot, Lowe’s

Discounters like Walmart and Target, and home improvement retailers Home Depot and Lowe’s have raced higher since the market bottomed-out in March. Walmart is 11% above 2020 opening levels, although that pales in comparison to Home Depot’s 28% surge and Lowe’s 30% rally. Target is the exception, although with year-to-date gains of 5% the stock is still fractionally outperforming the wider market.

According to Bank of America analysts, Target and Walmart could post strong earnings, thanks to broadened revenue streams, a timely shift to eCommerce, and shrinking expenses – with Q1 bearing the brunt of Covid-related costs.

Home Depot and Lowe’s have raced higher as investors bet on strong demand from consumers fed up of the homes they’ve been stuck inside for months. Both were able to stay open in Q1 while other businesses had to close, helping boost sales growth. Markets will be looking to see whether this moderated in Q2 as a whole as other firms opened their doors.

FOMC and RBA minutes, ECB accounts

We’ll get plenty of insight into the current state of mind of the world’s central bankers this week thanks to the latest meeting minutes from the Federal Open Market Committee, European Central Bank, and Reserve Bank of Australia.

The Fed, ECB, and RBA all left policy unchanged at their most recent meetings while reiterating their commitment to doing whatever it takes to keep the economy supported. The minutes will provide more information on their respective outlooks and how concerned policymakers are over second-wave risks.

Flash PMIs to help shape Q3 outlook

Now that the Q2 GDP data for the world’s major economies is in (in preliminary form at least), the focus can turn to the outlook for Q3. The next set of flash PMIs from Markit cover August, and will help to shape expectations of the pace of recovery this quarter.

The latest manufacturing, services, and composite numbers will be released for the Eurozone, UK, and US. July’s composite readings indicated economic activity in the Eurozone had expanded by the fastest pace in just over two years, while the UK expansion was the fastest since June 2015.

UK inflation, retail sales

Price growth in the UK came in slightly above forecast in June, rising from 0.5% to 0.6% on the year versus expectations of a slip to 0.4%. However, inflation is still running at a four-year low, and analysts do not believe June’s rise was the start of a sustained uptrend. Spare capacity in the economy is expected to keep a lid on price growth or see the rate slow even further.

Retail sales showed a larger-than-expected rise in June, jumping 13.9% on the month and following on from a 12.3% rebound in May. Despite the strength, many high street stores have announced jobs cuts recently. Data from the British Retail Consortium points to further sales growth in July, but with online still driving a huge portion of this the threat to the UK high street remains.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
12.00 UTC 17⁠-⁠⁠Aug Master the Markets
From 15.30 UTC 18-⁠⁠Aug Weekly Gold, Silver, and Oil Forecasts
17.00 UTC 19-⁠⁠Aug Using candlestick charts to form the basis of your trading analysis
17.00 UTC 20⁠-⁠⁠Aug Election2020 Weekly

Top Earnings Reports this Week

22.30 GMT 17-Aug BHP Billiton – Q4 2020
Pre-Market 18-Aug Walmart – Q2 2021
Pre-Market 18-Aug Home Depot – Q2 2020
Pre-Market 19-Aug Lowe’s Companies – Q2 2020
Pre-Market 19-Aug Target Corp – Q2 2020
After-Market 19-Aug NVIDIA – Q2 2021
After-Market 20-Aug Ross Stores – Q2 2020

Key Events this Week

Watch out for the biggest events on the economic calendar this week:

01.30 GMT 18-Aug RBA Monetary Policy Meeting Minutes
06.00 GMT 19-Aug UK Inflation
14.30 GMT 19-Aug US EIA Crude Oil Inventories
18.00 GMT 19-Aug US FOMC Meeting Minutes
11.30 GMT 20-Aug ECB Monetary Policy Meeting Accounts
12.30 GMT 20-Aug US Weekly Jobless Claims
14.30 GMT 20-Aug US EIA Natural Gas Storage
06.00 GMT 21-Aug UK Retail Sales
07.15 – 08.00 GMT 21-Aug Eurozone Flash PMIs (Composite, Manufacturing, Services)
08.30 GMT 21-Aug UK Flash PMIs (Composite, Manufacturing, Services)
12.30 GMT 21-Aug Canada Core Retail Sales
13.45 GMT 21-Aug US Flash Manufacturing PMI

Week Ahead: NFP in focus as US lockdowns threaten recovery hopes

Week Ahead

Earnings season is winding down, but the Q3 report from Walt Disney will be closely watched this week. On an economic front, the RBA and BoE both hold monetary policy meetings, and Friday’s US nonfarm payrolls report threatens to keep markets volatile right up until the weekend.

PMIs on tap from Markit, Caixin, ISM

A slew of PMIs this week will provide more information on the state of the global economy. Finalised manufacturing and services PMIs are due for the Eurozone, UK, and US. The closely-watched China Caixin manufacturing PMI arrives first on Monday, with the services PMI following during Wednesday’s Asian session.

Also in the docket this week are the US ISM manufacturing and nonmanufacturing indices. The nonmanufacturing index is expected to pull back slightly after leaping nearly 12 points in the June reading, while still remaining firmly in growth territory.

Reserve Bank of Australia meeting – recent deflation to prompt response?

The Reserve Bank of Australia meets against a backdrop of surging coronavirus cases both globally and domestically.

Fresh lockdowns threaten the economic reopening and recent CPI data revealed that prices fell on an annual basis for the first time since 1997 in Q2, with the quarter also posting its biggest drop in the consumer price index on record.

Markets are likely looking for policymakers to do more to stimulate inflation. With interest rates already effectively zero, and no appetite to go lower, the focus will be on whether the RBA considers other forms of stimulus necessary now or in the near-term.

Walt Disney earnings

Investors will be watching three key factors in Disney’s upcoming Q3 earnings report, which is due after the close on August 4th. The biggest portion of the company’s revenue comes from its theme parks – some of these have reopened, but others have remained closed even past their original reopen dates thanks to surging case numbers.

Delays not only to the release, but also the production, of blockbuster movies will impact both the bottom line and guidance.

Disney+ might prove a silver lining – lockdown has seen a surge in subscriber numbers for rival Netflix, and investors will be watching the see if Disney has enjoyed a similar boom.

Bank of England rate decision, Inflation Report

The Bank of England’s Monetary Policy Committee will announce its latest monetary policy decision on Thursday.

Chief economist Andy Haldane recently told the Treasury Select Committee that he believes the UK economy has recovered “roughly half” of the huge slump seen in March and April, but warned that unemployment could hit highs not seen since the mid-80s.

Haldane listed several policies the Bank of England could employ if policymakers deem it necessary – any talk of negative interest rates would be the most headline-grabbing, but the MPC could also consider additional QE, credit easing, or forward guidance.

No changes to interest rates or QE is currently expected. The BoE will also publish the latest Inflation Report on Thursday.

Nonfarm payrolls – fresh lockdown measures to slow labour market recovery?

July’s US nonfarm payrolls report is due for release on Friday. The past two readings have shown a huge rebound after the -20 million collapse seen in April, with 2.7 million jobs added in May and 4.8 million in June. Economists expect to see another 2.2 million jobs were created in July.

There is still a long way to go until the US is back to pre-Covid levels of employment, and surging case numbers and fresh restrictions on businesses in many states could weigh on future jobs gains.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
12.00 UTC 03-Aug Master the Markets with Andrew Barnett
From 15.30 UTC 04-Aug Weekly Gold, Silver, and Oil Forecasts
17.00 UTC 06-Aug Election2020 Weekly
12.00 UTC 07-Aug Marketsx Platform Walkthrough

Top Earnings Reports this Week

Here are some of the biggest earnings reports scheduled for this week:

05.30 UTC 04-Aug Bayer – Q2
04-Aug Sony – Q1
Pre-Market (UK) 04-Aug BP – Q2
After-Market 04-Aug Walt Disney – Q3
05.00 UTC 05-Aug Allianz – Q2
Pre-Market 05-Aug Regeneron
06.00 UTC 06-Aug Glencore – Q2
06-Aug Adidas – Q2
Pre-Market 06-Aug Siemens – Q3
06-Aug Uber – Q2

Key Events this Week

Watch out for the biggest events on the economic calendar this week:

01.45 UTC 03-Aug China Caixin Manufacturing PMI
07.15 UTC – 08.00 UTC 03-Aug Finalised Eurozone Manufacturing PMIs
08.30 UTC 03-Aug Finalised UK Manufacturing PMI
14.00 UTC 03-Aug US ISM Manufacturing PMI
04.30 UTC 04-Aug RBA Interest Rate Decision
22.45 UTC 04-Aug New Zealand Quarterly Employment Change / Jobless Rate
01.45 UTC 05-Aug China Caixin Services PMI
07.15 UTC – 08.00 UTC 05-Aug Finalised Eurozone Services PMIs
08.30 UTC 05-Aug Finalised UK Services PMI
14.00 UTC 05-Aug US ISM Nonmanufacturing PMI
14.30 UTC 05-Aug US EIA Crude Oil Inventories
11.00 UTC 06-Aug Bank of England Rate Decision, Monetary Policy Report
12.30 UTC 06-Aug US Weekly Jobless Claims
14.30 UTC 06-Aug US Natural Gas Storage
01.30 UTC 07-Aug RBA Monetary Policy Statement
06.00 UTC 07-Aug Germany Industrial Production / Trade Balance
12.30 UTC 07-Aug US Nonfarm Payrolls, Average Earnings, Jobless Rate

Week Ahead: Massive week for earnings, Federal Reserve meeting on tap

Week Ahead

Coming up this week – will the Federal Reserve lean on bond yields, and can Amazon, Alphabet, Apple and Facebook meet lofty expectations for earnings? 

Earnings 

Investors are becoming increasingly concentrated in a handful of big names, especially the very popular tech sector. The concentration is so large that the biggest five stocks make up almost a quarter of the total market capitalisation of the S&P 500. These stocks have returned 35% YTD, while the remaining 495 stocks have declined –5%. With such a high concentration in big tech, earnings updates from four of the five this week are going to be critical for the market’s direction. 

Facebook (FB), Amazon.com (AMZN), Apple (AAPL), and Alphabet (GOOGL) are all due to report earnings this week. This will provide the market with an important steer on the resilience of earnings among the largest-cap stocks as well crucial guidance on the coming quarters.  Read our preview to the Amazon earnings.

In a very busy week for earnings, Royal Dutch Shell and AstraZeneca are the biggest UK stocks to report, whilst luxury comes in for scrutiny with results due from Hermes and LVMH. 

Federal Reserve meeting – leaning on the front end? 

Talk of yield curve control is keeping Treasury rates low and weighing on real rates, but it is unclear whether the Federal Reserve will seek to lean any more on the front end of the curve when it meets on Wednesday. Chair Jay Powell has stressed that the Fed isn’t even thinking about thinking of raising rates, whilst the decline in US real yields to record lows is a sign perhaps that the market believes the Fed may do more. 

No policy change is expected at this week’s meeting, but it the talks are likely to set the stage for a move in the autumn to inject further support after last month the Fed said that highly accommodative policy was likely to last many years. At the last FOMC meeting, it was agreed that officials need more analysis of yield curve control but there was agreement on the need for more explicit forward guidance on interest rates, perhaps tying it to concrete targets for inflation or employment levels. This could further anchor the front end of the yield curve, acting as a de facto control mechanism.  

GDP figures – how bad was it? 

After the Fed, Thursday sees the release of the advanced US GDP reading for Q2. The Atlanta Fed’s GDPNow model indicates the world’s largest economy shrank by around 35% in the second quarter. However, we already know that the June quarter was terrible – the backwards-looking data may prove less instructive than the now hot-ticket US weekly jobs report, also due on Thursday. Ahead of these and before the European session opens the latest German GDP numbers will be released. 

 

Highlights on XRay this Week  

Read the full schedule of financial market analysis and training. 

07.15 UTC  Daily  European Morning Call 
12.00 UTC  27-Jul  Master the Markets 
From 15.30 UTC  28-Jul  Weekly Gold, Silver, and Oil Forecasts 
17:00 UTC  30-Jul  Election2020 Weekly 
19.30 UTC  30-Jul  Daily FX recap 

  

Top Earnings Reports this Week 

Here are some of the biggest earnings reports scheduled for this week: 

27-Jul  SAP 
27-Jul  LVMH 
28-Jul  3M 
28-Jul  Starbucks 
28-Jul  McDonald’s 
28-Jul  Amgen 
28-Jul  Visa 
28-Jul  Pfizer 
29-Jul  PayPal 
29-Jul  Facebook 
29-Jul  Boeing 
30-Jul  Nestle 
30-Jul  Samsung 
30-Jul  Procter & Gamble 
30-Jul  Alphabet 
30-Jul  Amazon 
30-Jul  Apple 
30-Jul  Shell 
30-Jul  AstraZeneca 
30-Jul  Hermes 
31-Jul  Chevron 

  

Key Events this Week 

Watch out for the biggest events on the economic calendar this week: 

08.0UTC  27-Jul  German Ifo Business Climate 
12.30 UTC  27-Jul  US core durable goods orders 
07:0UTC  28-Jul  Spain unemployment rate 
14:00 UTC  28-Jul  US CB consumer confidence 
01.30 UTC  29-Jul  Australia CPI inflation 
14:0UTC  29-Jul  US pending home sales 
14.30 UTC  29-Jul  US EIA Crude Oil Inventories 
18.00 UTC  29-Jul  Federal Reserve statement + press conference 
06:00 UTC  30-Jul  German preliminary GDP 
12.30 UTC  30-Jul  US Weekly Jobless Claims 
12:30 UTC  30-Jul  US advanced Q2 GDP 
14.30 UTC  30-Jul  US EIA Natural Gas Storage 
01.00 UTC  31-Jul  China PMIs 
12:30 UTC  31-Jul  US core PCE inflation, spending 

 Find every event in our economic calendar.

Week Ahead: Tesla earnings and vaccine hopes to drive sentiment

Week Ahead

Coming up this week – can Tesla do enough to justify its massive valuation with its second quarter earnings release? 

Tesla Q2 earnings

Tesla (TSLA) has enjoyed a stunning rally in 2020, rising 270% year to date. In the last 12 months, the stock has risen more than 500% in what can only be described as one of the most amazing turnarounds in corporate history. Over this period the S&P 500 has gained around 7%. Valuations are out the window and the stock is trading on tech multiples – some would say for good reason, but short interest in the stock – the percentage of shares out on loan to traders betting the stock will fall – remains relatively high at 7.5% 

Tesla stock has soared in the last year 

But it’s back to basics this week as Tesla reports its Q2 2020 financial results. The company is likely to report a fourth straight quarterly profit on July 22nd, which would clear the way for it to enter the S&P 500, and may explain the recent rally as funds have decided they will need to own some of it. 

The stock pushed to all-time highs close to $1,800 after the company said it delivered 90,650 vehicles in the second quarter, well ahead of both what the company had guided and the Street expectation for 83,000 vehicles. The company has successfully ramped production at its Fremont site and the Shanghai plant also came back online after being forced to shutter in the first quarter due to Covid. China sales are picking up with Tesla selling almost 12,000 Model 3s in May. The stock also got a lift after Wedbush Securities increased its price target on the stock to $1,250 from $1,000, whilst the bull scenario got a PT of $2,000. 

Analysts remain divided on Tesla 

…but hedge funds have been increasing their holdings 

Other earnings this week to watch come from Microsoft, Coca-Cola and Unilever. 

AstraZeneca and Oxford University vaccine results

Hopes for a vaccine continue to underpin equity market sentiment despite signs of a slower recovery than the V-shaped rebound everyone had hoped for. Much hope is being pinned on a candidate vaccine being developed by AstraZeneca and Oxford University – results from phase one clinical trials are due on Monday and could set the tone for the rest of week in equity markets. 

Also watch for a reaction in AstraZeneca shares, which have rallied strongly this year to make it the largest stock on the FTSE 100 

Economic data to watch

As ever on Thursday we are anticipating an important update from the US which will help show the pace of reopening and economic recovery in the shape of weekly initial and continuing unemployment claims. 

On Friday we have UK retail sales for June, which are expected to show improvement after rebounding a healthy 12% in May following the –18% decline in April at the height of the lockdown.  

Friday also sees the release of the latest flash PMIs for the Eurozone, which a month ago showed a decent rebound. PMIs, which are diffusion indices, are particularly challenged by the speed and magnitude of the economic contraction. So, whilst they may make a V-shape, it does not mean the recovery is V-shaped. PMIs only ask if survey participants think things are better or worse than the previous month, so they give a pretty imperfect snapshot of economic activity in times of crisis. A reading over 50 only tells us things are better than the prior month, which right now is not a high bar to clear.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
17.00 UTC 20-Jul Blonde Markets
From 15.30 UTC 21-Jul Weekly Gold, Silver, and Oil Forecasts
14.45 UTC 23-Jul Master the Markets with Andrew Barnett
17.00 UTC 23-Jul Introduction to Currency Trading – Is it For Me?

Top Earnings Reports this Week

Here are some of the biggest earnings reports scheduled for this week:

After-Market 20-Jul IBM – Q2
07.00 GMT 21-Jul UBS – Q2
Pre-Market 21-Jul Coca-Cola Co – Q2
Pre-Market 21-Jul Philip Morris – Q2
Pre-Market 22-Jul Biogen – Q2
After-Market 22-Jul Tesla – Q2
After-Market 22-Jul Microsoft – Q2
After-Market 22-Jul Gilead Sciences – Q2
07.00 GMT 23-Jul Unilever – Q2
Pre-Market 23-Jul AT&T – Q2
Pre-Market 23-Jul Twitter – Q2
After-Market 23-Jul Intel – Q2
23-Jul Southwest Airlines – Q2
Pre-Market 24-Jul Verizon – Q2
Pre-Market 24-Jul American Express – Q2

Key Events this Week

Watch out for the biggest events on the economic calendar this week:

01.30 GMT 21-Jul RBA Monetary Policy Meeting Minutes
02.30 GMT 21-Jul RBA Governor Lowe Speech
12.30 GMT 21-Jul Canada Retail Sales
00.30 GMT 22-Jul Japan Flash Manufacturing PMI
01.30 GMT 22-Jul Australia Retail Sales
12.30 GMT 22-Jul Canada CPI
14.30 GMT 22-Jul US EIA Crude Oil Inventories
06.00 GMT 23-Jul German GfK Consumer Climate
12.30 GMT 23-Jul US Weekly Jobless Claims
14.30 GMT 23-Jul US EIA Natural Gas Storage
06.00 GMT 24-Jul UK Retail Sales
07.15-08.00 GMT 24-Jul Flash Eurozone Services, Manufacturing PMIs
08.30 GMT 24-Jul Flash UK Services, Manufacturing PMIs
13.45 GMT 24-Jul US Flash Manufacturing PMI

Amazon earnings – what to expect from Q2?

Equities

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.

Dutch PM Rutte ‘not optimistic’ ahead of EU summit, Netflix misses

Morning Note

European stocks were choppy and likely set for a volatile finish to the week as EU leaders gather in Brussels for a key summit, with market participants squarely focused on whether the EU can agree to a broad recovery fund as part of the talks over the bloc’s budget for 2021-27.

Whilst the EU seems to be edging closer to a deal and Merkel and Macron should ultimately get the consensus they need for something like a €500bn-€750bn package of support, there is a risk the market has put too much on this particular meeting and is left disappointed if there is no final decision taken this weekend.

We may get an agreement in principle on the fund that will be made up of a mix of grants and loans, with details on the total money value and attached reform requirements to be finessed. Even that might be a stretch though – Merkel warned this week that it could take until the end of the summer to achieve a deal and today said talks would be tough.

Dutch PM Rutte said this morning he’s ‘not optimistic’ ahead of the talks. Indeed, I would not expect much more than a political declaration affirming member states commitment to achieving some kind of a deal.

This not an ordinary summit – what’s being talked about is mutual debt issuance for the first time. A deal would be a major breakthrough for the EU and show that the bloc has the ability to respond to an era-defining crisis with one voice.  Merkel is throwing all her political capital behind the European Recovery Fund, so there more than just EU solidarity riding on it.

The Frugal Four of Sweden, Austria, Denmark and the Netherlands remain the main barrier to achieving a deal as they are still to be convinced on why they should be sharing the burden of weaker states, but most countries will be out to fight their corner too. At least they are all back in a room and can talk through the night to trade horses and get something done – not so easy on Zoom, albeit it’s an absolute hangar of a room.

ECB’s Lagarde dismisses tapering chatter

Yesterday, the ECB left rates on hold as expected and Christine Lagarde appeared to push back against the tapering chatter by saying the ECB would use the full PEPP envelope of €1.35tn ‘barring surprises’. She also seemed confident member states would agree on the fiscal response to the crisis, which gave the euro a little nudge up at the time.

EURUSD is back under 1.14 this morning – a recovery fund deal would likely take it over 1.15 and set it up for further gains. Near term the support is around the 1.12 region.

Stocks on Wall Street finished lower on Thursday, led by a decline in tech. It’s probably too early to say this is part of a rotation out of growth into value – which could be a trade to consider if you assume that a vaccine is coming and things get back to normal – but there may be an element of profit-taking in big tech as investors take stock of events and consider the uncertainty over the pandemic, reopening rates, stimulus, earnings outlooks and stretched valuations in some corners of the market vs many stocks being in the bargain basement, among others.

Netflix subscribers and earnings growth miss

Netflix shares plunged 9% to $480 in after-hours trade as the company signalled weaker subscriber growth and profits missed expectations. Revenues were a tad better than forecast at $6.15bn, and as I expected, net subscriber additions in excess of 10m were ahead of estimates for about 7.5m, but earnings per share were a little soft at $1.59 vs $1.80 expected.

But guidance on future growth in subscribers was soft with the company only anticipating 2.5m net adds in September quarter. Maintaining Covid-era subscriber growth was always a tall order, if not impossible, but 2.5m would represent its weakest growth rate for a long time.

Although EPS was a miss, it was largely down to the timing of a California research and development tax credit charge. Netflix earnings have always been lumpy and net subscriber adds has always been a greater guide. The company expects 16% operating margin in 2020 and 19% for 2021, which CEO Reed Hastings said was ‘tamping down the expectations’.

Competition remains a headwind as new streaming services come online, but increasingly even social media is considered a rival. Netflix cited TikTok as a competitor – good news then that the US wants to ban the Chinese social media app.

There are of course questions about whether Netflix will manage to attract eyes in the way it did during lockdown – cinemas reopening, bars and restaurants luring people off the sofa etc, whilst the impact of Covid-related shutdowns on production is still being understood. Moreover coronavirus has simply pulled forward a lot of net adds from the coming quarters – expect slower growth but the company remains in a very good place.

US jobless claims mixed, homebuilder sentiment climbs

Economic data from the US was mixed. Initial jobless claims hit 1.3m, almost unchanged from the prior week. The improving trend has all but halted and may reflect the spike in coronavirus cases that has coincided with renewed lockdown measures in a number of economically important states such as Texas and Florida. California’s decision to roll back reopening signals worse could be ahead.

Continuing claims fell to 17.3m vs the 18m last week, which was a tad better than the 17.6m expected. The total number of people claiming benefits in all programmes for the week ending June 27th fell to 32m a decrease of 430k from the previous week. What’s clear is the rate of change is not moving in the right direction – getting back to pre-Covid levels will take a long time.

However, homebuilder sentiment rose 14 points to 72 in July, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). That’s where the index reached in March before the crisis hit and it slumped to 30 in April.

Oil and gold are both still in consolidation mode. WTI (August) cannot make a move beyond $41 stick, whilst gold is still crabbing sideways around the $1800 level and appears to set its new low and near-term support at $1796. US real rates (10yr TIPS) made new 7-year lows at –0.79%.

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