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 

 

Shell sold, Lloyds crumples, markets look to future post Covid

Morning Note

Shares in Shell slumped 7% as it cut its dividend and reported net income in the first quarter almost halved. Whilst BP chose to absorb a $6bn rise in net debt to $51bn and gearing above 36x in order to preserve its precious dividend, Shell seems to be taking a more prudent approach in cutting its dividend for the first time since the 1940s. Arguably BP is better placed to weather the storm, but Shell is taking the more sensible course of action. Shell’s gearing ratio is down to around 28x, a more comfortable level for Ben van Beurden than it is for Bernard Looney. This poses a simple question for investors – can BP keep it up? 

 

Shares in Lloyds sank 4% after profits collapsed in the first quarter and it significantly raised impairment charges. Profits before tax fell by 95% to £74m, as it raised credit losses provisions to £1.4bn. More worryingly for Lloyds is the 11% fall in revenues – if the housing market remains sluggish it’s got a lot of exposure to worry about and doesn’t have the investment banking arm to fall back on that Barclays does. The read across hit RBS, which is similarly exposed to credit impairments in the UK, with shares almost 4% lower.

 

The US economy shrank more than expected in the first quarter, declining by 4.8% and signalling the slowdown in Q2 could be well beyond estimates. Spain’s economy declined by 5.2% in the first quarter, marking the steepest contraction since records began in 1995. It was also worse than the ~4% decline expected.  

 

But the extent of economic destruction matters less to the market than the speed at which recovery will happen, so news from Gilead that its remdesivir drug can probably treat Covid-19 sent stocks into a strong rally. White House health advisor Dr Anthony Fauci gave it a cautious thumbs up, too. Global stock markets are looking to a world post-Covid-19, although the wider macro trade is less optimistic.

 

The S&P 500 rallied over 2.6%, closing 5 points above the important 61.8% retracement found at 2934, after the Gilead news. The Dow also rallied and is on pace for its best month since 1987. The broader S&P 500 is tracking its best month since Oct 1974. These are strange times for markets, but you have to look at the way in which tech is driving gains and how large caps can lean on central bank support. 

 

European markets jumped yesterday and are skirting around the flat line after almost an hour of trading as traders try to figure out whether there is any more left in this rally. I don’t think markets are going to want to retest the highs any time soon and profit-taking and renewed risk-aversion will likely see a pullback before long.

 

Last night the Federal Reserve warned of medium-term risks to the economy and signalled there is not going to be a V-shape recovery. Jay Powell did nothing to upset markets and suggested it was likely the Fed would need to do more. The European Central Bank will need to communicate a similar message of support today. 

 

Microsoft and Facebook earnings were very strong, beating estimates, but this does nothing but underline the relative safety to be found in high quality technology companies with strong balance sheets and resilience to lockdown measures. Facebook jumped 10% in after-hours trading as it said April showed some stability in ad revenues, echoing the statement from Alphabet.  

 

Oil continues to notch gains as the risk rally reflects hopes of the global economy opening up sooner, and after a smaller-than-feared build in US crude inventories. Front-month WTI rose above $17 in early European trade. US crude oil inventories rose by 9m barrels from the previous week less than the 11-12m expected and giving some flicker of hope to beleaguered oil traders. Domestic US production slipped, but not by a lot, falling to 12.1m bpd from 12.2m bpd a week before.  

 

Russia’s energy minister Novak said the country’s producers would cut output by 20% from February levels in May, while Norway is playing ball with the OPEC+ arrangement by reducing production by 13%. But demand falls still seem to exceed the capacity of the market to reduce supply. The International Energy Agency said Thursday that global energy demand will fall by 6% in 2020, and will be down 9% in the US and 11% in the EU.  

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