CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.9% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Week Ahead: Tesla and Netflix top Q3 earnings season bill
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 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.
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
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
|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
|Oct 20th||Procter & Gamble|
|Oct 21st||NextEra Energy|
|Oct 20th||Lockheed Martin|
|Oct 23rd||American Express|
|Oct 20th||Snap (Snapchat)|
|Oct 22nd||Valero Energy|
|Oct 20th||Reckitt Benckiser|
|Oct 21st||William Hill|
|Oct 21st||Metro Bank|
*Slated for this date
Broad rally for equities as UK goes for lockdown-lite, Tesla fails to spark, precious metals under pressure
European markets rose 1% in early trade on Wednesday, extending mild gains from the previous sessions following the steep selling on Monday. Yesterday, the S&P 500 rose 1%, and the Nasdaq climbed 1.7%, whilst markets across Europe were a little more mixed with London and Frankfurt higher but Paris lower.
Today sees solid bid across sectors and bourses with a slate of manufacturing and services PMIs in focus. The FTSE 100 recovered the 5,900 level, with even IAG and easyJet getting in on the action, rising 6% each. Safe-haven play Fresnillo was off by a similar margin as silver and gold prices come under a good deal of pressure again today.
There is no clear evidence for the airlines to rally except that perhaps there was an overreaction earlier in the week.
PMIs underline the fragility of the recovery
I will issue the usual caveat about extrapolating too much from these diffusion indices, but they do highlight an interesting trend. The manufacturing sector can sustain a recovery as firms can work out how to function in the new environment, but it’s harder for many service sector businesses to operate at all, which drags on the number.
Service sector companies are also much more exposed to the caprice of lockdowns. Both German and French services PMIs came in under 50, indicating contraction (survey respondents think things are worse than the month before), while both countries’ manufacturing PMIs pointed to expansion.
The UK is heading for a second lockdown-lite
This will dent the recovery and hit some sectors especially hard, but perhaps more importantly this is spurring the chancellor into action. With the furlough scheme slated to end in October, there is a risk of a jobs calamity even without further lockdown restrictions, which are a possibility.
Rishi Sunak is reported to be working on new plans to support jobs, which may ease worries among investors that the UK economy could fall off a cliff for a second time just as the Brexit process reaches its finale.
Individual stocks are putting some very big moves daily which only indicates the kind of dislocation in market pricing, uncertainty about the path of the pandemic and the fact that no one really knows where a lot of these securities ought to be trading.
Whether it’s value or growth, tech or travel, the unevenness of both the recovery and government policy means it’s hard to know what a fair value is. Trying to extrapolate a narrative to fit all of this is often a fool’s errand.
Tesla stock tumbles after Battery Day reveals fall flat
A case in point: Tesla shares fell over 5% and extended their decline by a further 7% in after-hours trading, despite Elon Musk outlining the company’s plans to halve the cost of battery manufacturing and market an electric car at $25,000. The new battery tech would deliver 16% more range and x6 more power, but the company said production in volume is three years away.
There is some debate about whether Tesla’s Battery Day announcements amount to incremental or revolutionary changes to battery technology, but two things are clear: Tesla has not suddenly acquired warp speed capability, but clearly the company has a roadmap to cheaper, longer life battery technology that it will make itself and will allow it to lead the EV field for a while longer.
Panasonic and other suppliers were hit with Tesla planning to make its own battery. Nevertheless, given all the anticipation around a potential game-changer in battery technology, investors were a little underwhelmed by the news. Tesla’s Frankfurt-listed shares declined 7% at the open, before paring losses a touch.
Nike climbs as online sales surge, Ant Group takes another IPO step
Nike shares shot higher after-market following an 82% rise in online sales, with the company expecting to benefit from a permanent shift to direct online sales. EPS of $0.95 beat the $0.47 expected, on revenues of $10.6bn vs the $9bn expected. Nike continues to benefit from its strong brand presence that is akin to Apple in the smartphone space, as well as large investments in its web and mobile platforms. Shares in Adidas and Puma rose about 4% on the read-across.
Ant Group took a step closer to its mega-IPO after it submitted documents for registrations of the Shanghai side of the listing. The company plans to list both on Shanghai’s STAR Market and in Hong Kong, with valuation estimates in the region of $250bn-$300bn.
Cable softens, BoE Baily fails to quell negative rate fears
In FX, GBPUSD traded under 1.27 in early European trade after the downside breach of the 200-day EMA presented bears with an obvious momentum play. Yesterday’s move under the 1.2760 level has opened up the path to further losses and today the pair is trading through the 100-day line and testing the 38.,2% retracement at 1.2690.
Whilst Andrew Bailey attempted some push back on negative rates, saying they are not imminent, the takeaway from his comments was that this unorthodox and dangerous tool is very much being actively considered by the bank’s Monetary Policy Committee.
Chart: GBPUSD downside exposed
The USD continues to find bid, which is weighing on gold. DXY extended its push out of the channel, forcing gold to trade under $1,900 and test the 50% retracement around $1875, corresponding with the horizontal support of the descending triangle formed by the August lows. Silver has a bearish bias after breaching the August low.
Chart: Dollar continues breakout
Chart: Gold tests 50% retracement
Chart: Silver breaks August lows
Week Ahead: Tesla Battery Day to spark investor interest
Tesla hosts its long-awaited and much-hyped Battery Day on Tuesday, with investors eyeing a possible game-changing technology announcement. Meanwhile the economic data stream flows with flash PMIs for the Eurozone, a Reserve of Bank of New Zealand interest rate decision and the weekly US jobs report.
Fed chair Jay Powell and Bank of England governor Andrew Bailey are both due to speak in the coming days after last week’s FOMC and MPC meetings.
Tesla Battery Day
Tesla’s 2020 annual meeting of stockholders will be held on Tuesday, September 22, 2020, at 13:30 Pacific Time. Immediately after this meeting, Tesla will hold the Battery Day event, which has been generating equal amounts of speculation in the shares as in what CEO Elon Musk may be about to reveal.
Our full guide to the event can be found here.
How is the economic recovery going?
Is the global economic recovery losing momentum? Whilst the snapback after lockdowns was the easy bit, it’s going to be much harder to get back to 2019 levels. Marginal gains are becoming harder to come by and some high frequency economic indicators are starting to level off. Eurozone PMIs for instance, have started to soften.
The latest round of flash manufacturing and services surveys for the Eurozone, UK and US are due on Wednesday. Meanwhile traders will be watching the weekly US jobless claims numbers as closely as ever on Thursday, while US durable goods orders on Friday offer a useful leading indicator of business demand.
How are central banks responding?
Last week the Federal Reserve and Bank of England signalled they are ready to do more as required and interest rates are set to stay low for a long time. This week sees the Reserve Bank of New Zealand in action after the country posted its worst recession in decades.
The country’s economy shrank by 12.2% between April and June, the steepest decline since the current system of measurement began in 1987 as strict national lockdown measures crippled activity.
The RBNZ has been looking at negative rates with assistant governor Christian Hawkesby saying last month that the central bank is “preparing the groundwork” for additional policy tools, which include negative rates. Will they make the leap now, or will they gauge that the economy will bounce back thanks to the very low number of cases?
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|15.00 UTC||21-Sep||Tesla Battery Day Preview|
|17.00 UTC||21-Sep||Blonde Markets|
|17.00 UTC||22-Sep||Webinar: Identify Trends and Choose Technical Indicators|
|14.45 UTC||24-Sep||Master the Markets|
|17.00 UTC||24-Sep||Election2020 Weekly|
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.
|22-Sep||Kingfisher – Half-Year Results|
|14.00 UTC||22-Sep||Eurozone Consumer Confidence|
|02.00 UTC||23-Sep||Reserve Bank of New Zealand Rate Decision|
|07.15 – 08.00 UTC||23-Sep||Eurozone Flash Services / Manufacturing PMIs|
|Pre-Market||23-Sep||General Mills – Q1 2021|
|08.30 UTC||23-Sep||UK Flash Services / Manufacturing PMIs|
|14.30 UTC||23-Sep||US EIA Crude Oil Inventories|
|23.50 UTC||23-Sep||Bank of Japan Meeting Minutes|
|08.00 UTC||24-Sep||German Ifo Business Climate|
|Pre-Market||24-Sep||Accenture – Q4 2020|
|12.30 UTC||24-Sep||US Weekly Jobless Claims|
|14.30 UTC||24-Sep||US EIA Natural Gas Storage|
|After-Market||24-Sep||Costco Wholesale Corp – Q4 2020|
|11.00 UTC||25-Sep||Bank of England Quarterly Bulletin|
|12.30 UTC||25-Sep||US Durable Goods Orders|
Tesla Battery Day primer: Can Musk deliver as TSLA rallies on event hype?
Tesla Battery Day primer
- Battery Day event scheduled for Sep 22nd
- Signs of speculative buying ahead of event
- Elon Musk hints at more energy dense batteries
Investors are charged up with excitement ahead of Tesla’s Battery Day event. Shares have rallied about 25% in the last week after the stock tapped on the 50-day simple moving average following some heavy selling in the middle of the Nasdaq’s early September pullback.
This of course followed disappointment at missing out on S&P 500 inclusion, and some very aggressive bid that took place in and around the stock split. So is Battery Day all hype, or is there something to it?
Tesla’s 2020 annual meeting of stockholders will be held on Tuesday, September 22, 2020, at 13:30 Pacific Time. Immediately after this meeting, Tesla will hold the Battery Day event.
CEO Elon Musk, in his usual caution, said in January that the event will ‘blow your mind’. Recently he toned it down a bit, teasing ‘many exciting things’. Whilst we should always take his pronouncements on Twitter with a pinch of salt, clearly there is a high degree of expectation and speculation – and speculative buying of TSLA stock – taking place in the run-up to the event.
To deliver on its EV promise, Tesla needs to own the battery space. Without this, it’s not so different to an OEM. Musk commented on this at Tesla’s Q4 2019 earnings call in January, explaining that in order to ramp up Model Y production, introduce the Cybertruck and launch the Semi electric truck, a lot more batteries would be needed.
“So, the thing we’re going to be really focused on is increasing battery production capacity because that’s very fundamental because if you don’t improve battery production capacity, then you end up just shifting unit volume from one product to another and you haven’t actually produced more electric vehicles,” Musk said.
And whilst Tesla has a lead in the powertrain stakes, traditional players may catch up. “It’s worth noting that the Model S has like a 100 kWh pack, the [Porsche] Taycan has like a 95 kWh pack. The Model S is steadily approaching 400 miles of range. The Taycan has 200 miles of range. So we must be using that energy pretty efficiently, and the powertrain is a big part of that,” Musk added in January.
Whilst battery production is one thing, making the batteries more efficient is quite something else. Tesla’s acquisition of Maxwell, an ultra-capacitor manufacturer and battery technology business based in San Diego, is a considerable factor.
What to expect from Tesla’s Battery Day
My expectation is that Musk is about to announce if not a leap then a progression in battery technology that brings EV costs down to, or close to, traditional automobiles. It would be a surprise if Tesla were not able to say it has made further progress on batteries that are more energy dense and have a longer life.
We note for example, that on August 24th this year Musk said battery cells of 400 Watt hours per kilogram (Wh/kg) with a high cycle would be possible in volume within 3 to 4 years, way beyond the current 260 Wh/kg in the Model 3, which could indicate knowledge of some improvement coming in the Tesla batteries.
There has also been speculation that Tesla may unveil “silicon nanowire anode” technology that can greatly increase battery density and cell life. All of this remains speculation, of course.
If Tesla can both lower costs and increase battery energy density and life, it would be a significant step forward for the company and further cement its lead in the EV space. However, given the recent rampant speculation on the stock and Musk’s capacity to somewhat overstate his case, there is a considerable risk of a buy-the-rumour, sell-the-fact trade.
Tesla Stock Signals
Whilst client flows remain positive (87% bullish), analysts remain downbeat – the average price target of $300 vs the current $450 for the stock implies a 34% downside. We also note that hedge funds have been decreasing their holdings.
Baillie Gifford, one of the top shareholders, recently reduced its stake as the holding approached fund limits, but also because of fears that valuations had just got silly. Our insider signals tool also delivers a sell signal on the stock.
Pound at 6-week low, European stocks stabilise but risk sentiment fragile
Tech stocks bled heavily again for a third straight day as trading resumed on Wall Street following the Labor Day weekend. Tesla slumped a whopping 21% to notch its worst day ever. The other major tech giants also dropped heavily as the Nasdaq fell 4% and entered correction territory – down 10% from its recent peak.
Whilst this began as more of a technical correction within tech following the astonishing ramp in August than a broad risk-off move, it is nonetheless bleeding into the broader market and dragged down the majority of stocks. US benchmark yields have retreated and oil prices have rolled over.
SPX not far behind after Nasdaq enters correction territory
There was some rotation going on – Disney, Nike, McDonald’s, Ford and GM rose – but the S&P 500 still declined almost 3% and is not so far off correction territory itself. On the whole there is a sense that this selloff represents that sentiment has become too exuberant and needed to correct.
We may expect the US market now to chop in W-pattern over the coming months and follow the path taken by European equities since June with the loss of momentum in the economic recovery and US election risks likely to become more visible in equity markets.
Asian equities fell with the weak US handover. European stocks opened a little bit higher in early trade but risk sentiment appears very fragile. The FTSE 100 is enjoying the pound’s distress with heavyweight dollar-earners like BP, Shell, Unilever and British American Tobacco among the best risers.
In dollar terms the market is flat. The index got a confidence boost as Barclays raised their call on UK equities to ‘market-weight’ from ‘underweight’.
Increase in coronavirus cases weighs on recovery outlook
Nevertheless, investors are becoming worried again about rising Covid cases across many developed markets which threaten the trajectory of the recovery and may well weigh on demand in a number of sectors.
The evidence is evident in a couple of markets. Oil prices have rolled over with WTI dropping under $37 to hit its weakest since the middle of June. Another tell that this tech-led selloff is more than just a simple technical correction are bond yields.
US 10-year Treasury yields logged their biggest drop in a month, sliding from 0.72% Friday to 0.682%. Despite the move in yields gold prices remain resolutely stuck to the $1930 anchor having tested $1906 and the 50-day SMA yesterday.
There is also some negative headlines around work on a vaccine which may weigh on risk a touch, or at least provide algos with a sell signal. AstraZeneca shares fell after it was forced to pause clinical trials of its Covid-19 vaccine candidate after a participant in the study was taken ill.
Such are the problems with pinning hopes on a vaccine for a return to normal to be possible. The worry is that while we have all kind of assumed that one company will come up with vaccine later this year, it’s not going to be plain sailing.
Tesla tumbles after S&P 500 snub
Tesla shares got well and truly smoked after it was not added to the S&P 500, to some surprise. Tesla stock hadn’t traded below its 50 day average price since April 13 and closed the day at this level at $330 – this level needs to hold or we could see further declines for the stock.
The market was surprised by Tesla not being included in the index. At the time, we talked a lot about how possible inclusion in the S&P 500 was a big driver of the stock’s rally earlier in the year and therefore being snubbed will force some funds to rethink whether they need to hold such a high beta stock if it’s not part of the index.
Pound sinks on Brexit worries, strong dollar
In FX markets, sterling is finding the going very tough, sinking to a 6-week low with the dollar catching a bid and Brexit risks weighing. DXY has advanced to clear 93.50 and test the top of the descending wedge, while EURUSD dropped further under 1.18 ahead of the ECB meeting which might be a lot more dovish than the market thinks.
This is not a pure dollar move by any means – the pound was also at its weakest since the end of July against the euro, too. For cable this has meant the build-up of downside pressure has blown out the stops at 1.30 and GBPUSD is running south with not a lot of support until 1.28.
Brexit risks are a major factor – the UK government admitted it will break international law in order to fix the withdrawal agreement should there be no deal by October 15th. Talks continue today between the UK and the EU and there are clear headline risks as traders see a higher chance of no deal emerging.
However, we should caution that a deal will likely emerge at the last moment after considerable brinkmanship from both sides that makes it seem as though a deal is impossible. Nevertheless, with still 5 weeks to go before the deadline imposed by the British government, there may be a very rough ride ahead for the pound.
Chart: Stops are out as GBPUSD trades below 50-day SMA
Chart: Having pushed clear of the 21-day SMA the dollar tests top of the descending wedge, 50-day SMA above
FTSE lags as dollar continues to drop
Back to school: the unruly mob are back. But that is enough about MPs going back to work – children start the autumn term this week and the furlough scheme starts to unwind with the government reducing its contribution to employees’ wages to 70% in September.
Furlough forever is simply not an option – zombie staff, zombie businesses. But it means unemployment is surely set to rise – and consumer confidence always follows. The chancellor is floating a tax raid – better to monetize the debt surely?
Stocks soft after strong August
Stocks were a tad weaker on Monday, but August was a great month. The MSCI World index rose 6.6% and the S&P rallied over 7% to record their best August since 1986. The Nasdaq rose 10%. August is usually a poor month for stocks.
Tuesday morning saw a firm bounce for the major European bourses, though the FTSE 100 lagged as it played catchup following the bank holiday. A stronger sterling is also dragging on the big dollar earners. AstraZeneca has started large-scale human trials of its coronavirus candidate vaccine in the US.
The Federal Reserve has put a floor under markets and a ceiling on rates, delivering conditions where stocks can only float higher. We call this TINA – There Is No Alternative. It’s not sustainable of course, but it won’t stop the Fed and other central banks continuing to inflate the bubble. The Fed’s policy shift on inflation has marked a important change for the central bank and it may be followed by the ECB and others.
Vix futures – the so-called ‘fear gauge’ are telling another story. These have started to grind higher despite stocks rallying, which raises a warning about the future path of the market. As previously mentioned, volatility should rise as the election approaches and the races proves far tighter than it currently looks. In summary, the options market is sending a signal that the stock market is not.
Strong China manufacturing PMI lifts sentiment, despite soft readings from France, Spain
Sentiment this morning is helped by data showing Chinese factory activity rose at the fastest pace since 2011. French and Spanish manufacturing PMIs softened, dropping under 50 to signal contraction, while Italy’s was a little better than expected at 53.1.
Some of the moves in US shares are striking. Apple rose over 3% to $129 after splitting, whilst Tesla shares rocketed 13% on its busiest day ever. Stock splits shouldn’t make a difference, except this time they have. Tesla is up 74% for the month.
Zoom races higher after smashing earnings forecasts
Zoom rose almost 23% in after-hours trade after it reported a 355% rise in revenues to $663.5m for the July quarter, smashing forecasts for around $500m. Zoom has proved to be a Covid winner of epic proportions – but shouldn’t we all be going back to the office by now? The UK significantly lags Europe and others in ‘getting back to work’ statistics – this has a huge implication for productivity and for the wider economy.
The dollar continues to soften and trying to guess the bottom is akin to catching a falling knife. The dollar index sank to fresh two-year lows in the wake of the Fed’s inflation shift. Perennial dollar bulls have been caught off guard with the unwind, however the Fed’s recent shift on inflation targeting only underlines that bears called this early.
More inflation and a central bank prepared to let it happen should reduce the purchasing power of the dollar and therefore it ought to weaken. However, with the buck usually a safe harbour, it shouldn’t soften too much more.
The pound was up, with GBPUSD pressing on the post-election euphoria high of last December a little above 1.34. There are Brexit risks ahead – talks recommence next week – but for the moment the major driver of this is the dollar’s weakness. Gold futures rose to $2,000/oz as the weaker dollar lifted commodity markets and US real rates – 10-year TIPS – have sunk again as inflation expectations rise.
Week Ahead: AAPL & TSLA split, Dow reshuffle, NFP in focus
What’s next for Apple and Tesla once their stock splits go into effect? How will the new-look Dow react to the latest market updates? And can the US nonfarm payrolls continue the trend of strong growth?
Apple and Tesla splits
This week Apple and Tesla will both start trading at their new prices after completing their recent splits. AAPL will drop by a quarter; TSLA by a fifth. Both stocks have seen huge appreciation since the splits were announced, with Apple jumping above $500 per share last week and Tesla continuing to climb after recently blasting through $2,000.
Stocks often pull back after a split as holders sell some of their additional shares to lock in some profit from recent appreciation, but this could be temporary. Apple will soon unveil its latest iPhone range, including the much-anticipated 5G models. Tesla’s upcoming Battery Day event, scheduled for September 22nd, could see the company announce new innovations that improve the range and performance of its cars.
You can find out more about the stock splits and how they affect any open trades here.
New look Dow Jones Industrial Average
Following the Apple stock split, the Dow Jones Industrial Average will be a different beast from this week onwards. The Dow is a price-weighted index, unlike the S&P 500 which is based on market capitalisation, so a 75% drop in Apple’s share price has forced several changes.
First of all Apple will no longer have the largest weighting in the index, and will drop from first place to around 17th. This means that volatility in the stock have a smaller impact upon the Dow than previously. United Health will become the biggest stock in the index, and consequently will have more clout.
Additionally, several stocks have been dropped from the index to make way for new ones in order to keep its composition roughly a quarter tech stocks. You can read more about the changes here.
Zoom Video Communications earnings
Since the start of the pandemic Zoom has become an essential tool for businesses across the globe. It’s also seen a sharp increase in personal usage, with consumers using it to do everything from hold date nights to streaming weddings and even funerals. Customer numbers surged 354% year-on-year during the company’s first-quarter, with revenue up 169%.
As a result investors have jumped on the stock, sending ZM rocketing 330% so far this year.
This time around analysts are looking for sales of almost $500 million and EPS of $0.45 per share – which would equate to year-on-year growth of 462.5%.
Reserve Bank of Australia to trim the OCR?
The Reserve Bank of Australia meets this week. Last month policymakers unleashed more QE and acknowledged that there would be an economic hit from the decision to implement a full lockdown in Victoria – the second-largest state by population and output – but left rates on hold.
ASX Cash rate futures show that a slim majority of market participants are expecting the RBA to slash rates to 0% this time around. However, governor Philip Lowe has previously floated the idea of a rate cut to 0.1% should further adjustments be necessary, so even if policymakers do see the need for more easing they may not go all the way to zero.
US Nonfarm Payrolls
Friday’s US nonfarm payrolls data will of course be the main focus of the week. Jobs growth once again outpaced forecasts last month, although the rate of recovery eased to 1.763 million as a resurging number of coronavirus cases slowed hiring.
Recent jobless claims data has continued to show falling numbers of initial and continuous claims: the number of first-time applicants for jobless insurance dropped below 1 million in the week ending August 8th, for the first time since the pandemic started. The four-week average for claims has fallen consistently for several weeks, as have the number of continuous claims.
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||31-Aug||Master the Markets|
|From 15.30 UTC||1-Sep||Weekly Gold, Silver, and Oil Forecasts|
|17.00 UTC||3-Sep||Election2020 Weekly|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|12.00 UTC||31-Aug||German Preliminary CPI|
|After-Market||31-Aug||Zoom Video Communications – Q2 2021|
|00.45 UTC||01-Sep||China Caixin Manufacturing PMI|
|4.30 UTC||01-Sep||RBA Official Cash Rate Decision|
|7.15 – 8.00 UTC||01-Sep||Finalised Eurozone Manufacturing PMIS|
|8.30 UTC||01-Sep||Finalised UK Manufacturing PMI|
|10.00 UTC||01-Sep||Eurozone Flash CPI|
|14.00 UTC||01-Sep||US ISM Manufacturing PMI|
|1.30 UTC||02-Sep||Australia Quarterly GDP|
|14.30 UTC||02-Sep||US EIA Crude Oil Inventories|
|1.30 UTC||03-Sep||Australia Trade Balance|
|00.45 UTC||03-Sep||China Caixin Services PMI|
|7.15 – 8.00 UTC||03-Sep||Finalised Eurozone Services PMIs|
|8.30 UTC||03-Sep||Finalised UK Services PMI|
|12.30 UTC||03-Sep||US Jobless Claims|
|14.00 UTC||03-Sep||US ISM Nonmanufacturing PMI|
|14.30 UTC||03-Sep||US EIA Natural Gas Storage|
|1.30 UTC||04-Sep||Australia Retail Sales|
|6.00 UTC||04-Sep||German Factory Orders|
|12.30 UTC||04-Sep||US Nonfarm Payrolls, Unemployment Rate|
Apple and Tesla announce stock splits – here’s what you need to know
Apple and Tesla have both announced that they will split their stocks at the end of this month. Apple shareholders will be granted three additional shares for each one they hold, while Tesla shareholders will receive another four shares for each one they hold.
The price of each share will be divided by the size of the split to reflect the increased supply: AAPL will start trading at 0.25 times the pre-split price, while Tesla stock will trade at 0.2 times the pre-split price.
But why are Apple and Tesla splitting their stocks, and how will this affect your trades?
Why are Apple and Tesla splitting their stocks?
Apple was the first to announce its stock split earlier this month, followed a few days later by Tesla. Both shares have rallied hard since the announcements although a split shouldn’t theoretically affect their value.
Stock splits usually happen for two reasons: to increase liquidity and to make the stock more attractive to retail investors.
An asset’s liquidity refers to how easily it can be bought and sold without impacting its price. Putting more shares into circulation often increases its trading volume, which can narrow the spread between bid and ask prices. This could make it easier for buyers and sellers to get a fair price for the shares they want or have.
Apple stock currently trades for around $430 per share, while Tesla has surged towards $2,000 recently. The high valuation could be putting investors off. Shares are often bought and sold in standardised blocks – a “board lot” of 100 shares would cost an investor $43,000. If the stock were split today, 100 shares would cost $10,750.
However, modern ways of trading shares (such as leveraged products like Contracts for Difference) have made it more affordable to trade even expensive stocks, so the benefit isn’t as obvious as it used to be
Regardless of the why the decision was made, investors have taken it as a sign of confidence in the stock – Apple and Tesla wouldn’t want to lower their share price if the companies felt that there wasn’t the potential for further appreciation.
How will the stock splits affect my trades?
On August 31st Apple stock will start trading at a quarter of the pre-split price, and Tesla will begin trading at a fifth of the pre-split price.
Any existing positions on AAPL CFDs will be closed at the original opening price and new positions opened at the new split-adjusted price but for four times more units. The same will happen with positions on TSLA CFDs, but with five times more units.
See below for an example – note that the prices given are based upon the market value as of August 20th and are for indicative purposes only.
- Before the split you have 100 units of Apple CFDs, each valued at $462 for a total value of $46,200.
- When the stock is split your position for 100 units will be closed at the original opening price (so P&L will display as zero) and a new position will be opened that is four times larger. In this instance your holdings would now be for 400 units of Apple CFDs.
- The price of each unit will be worth a quarter of the pre-split price, meaning in this example each unit is valued at $115.50 for a total for $46,200 – exactly as before.
If you didn’t already have a position in Apple and wanted to trade it, or want to expand an existing position, you would be able to buy the same quantity of units for a lower price, or more units for the same cost as before.
In effect, the size of your AAPL and TSLA positions will be multiplied by the same quantity as the stock prices are divided by, meaning the value of your holdings will not change.
How the Apple split will impact the Dow
Anyone trading the Dow will also need to pay attention to the Apple stock split.
The Dow Jones Industrial Average is a price-weighted index, so when Apple’s stock price drops thanks to the split the company will no longer be the index’s biggest constituent (that will be UnitedHealth).
Moves in Apple stock will therefore have less of an influence on the Dow than they currently do.
Will other companies copy Apple and Tesla?
Investors are now looking to other tech giants to see whether they decide to follow suit. Amazon and Alphabet will be of particular interest – Amazon’s stock price is over $3,100, while Alphabet is trading near $1,500 at the time of writing.
A lower stock price for Apple would make the stock more attractive, and Amazon and Alphabet may want to ensure they aren’t pricing potential investors out of the market. However, as the huge cost of an individual share in either of them proves, neither Amazon nor Alphabet has felt the need to resist high prices in the past.
Stocks firm, gold chased higher, Tesla earnings beat
European stocks were firmer after US stocks rallied yesterday to finish at the best level in months, whilst Asia was mixed. The S&P 500 closed at 3,276, its best finish since February as decent corporate earnings supported the bulls who continue to shrug off the rising Covid cases as well as mounting US-China tensions. The broad index also managed to close at the high of the previous session, having previously closed 20 pts short of this level.
There are some concerns with US-China tensions after the closure of the consulate in Houston, with China retaliating by closing the US consulate in Chengdu. But this kind of tit-for-tat is nothing new – we have been dealing with a trade war for years and I think the market is fully expecting friction to increase, particularly as the US presidential election looms and domestic strife makes it all too convenient for the White House to bash China. UK-China tensions are something a little fresher and have led to Chinese authorities taking the English Premier League off air.
Tesla posted its first full year of GAAP profitability, meaning it can now be considered for inclusion in the S&P 500. Excluding special items, EPS came in at $2.18 on revenues of $6bn. Whilst the beat on deliveries reported earlier by the company indicated a strong quarter, this was better than most had forecast. Whilst the stock is still exceedingly rich based on the fundamentals, it’s one with such a backing that it just doesn’t seem to matter. In some ways it’s a talisman for the whole stock market – old fashioned ideas like valuation and discounted free cash flow models simply don’t matter when you have such an incredible amount of liquidity. It’s also a bet on the future of the automotive industry – which carmaker is going to be around in 50 years?
Microsoft shares fell after hours following its quarterly earnings revealed a slowing in cloud growth, with revenues from the Azure business down from 59% to 47%, although overall the company beat on both the top and bottom lines. XBox revenues soared as gamers found ways to pass the time in lockdown. Likewise Americans stocking up on ice cream and other goodies lifted Unilever sales but emerging markets -without the help of an Ocado to bring consumers lockdown treats – were tougher.
On the data front, Germany’s Gfk consumer confidence survey was better than expected, printing –0.3 vs the –4.6 expected. South Korea’s economy is in recession after the worst slump 57 years.
Today the focus is on the US weekly unemployment numbers, with initial jobless claims forecast to hold steady at 1.3m. Initial jobless claims last week of 1.3m were almost unchanged from the prior week. As noted after the release of the numbers last Thursday, the improving trend in initial jobless claims has all but halted, which 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 California. There are also big worries that temporary layoffs are turning into permanent firings.
Continuing claims fell to 17.3m vs the 18m in the prior 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.
On the Covid front, US deaths exceeded 1,000 for the second day, whilst California – the most populous and economically important state – saw more than 12k cases on Wednesday, its largest single-day rise.
In FX, the dollar remains on the backfoot with major peers cementing gains. EURUSD has cleared the January 2019 peak at 1.1570 and looking for a further extension towards the next big Fibonacci level at 1.1760 and the September 2018 swing highs at 1.18. The outlook for the euro is more bullish – on a technical note the clearance of 1.15 is a big hurdle out of the way, whilst the agreement on the EU pandemic fund is fundamentally vital to pushing the euro higher. Longer term is could have very far-reaching repercussions for bond investors, too. GBPUSD was trading above 1.27 and the 200-day moving average and testing the descending trend line that forced the pullback on Tuesday – clearance of these two hurdles opens up a path to 1.30 albeit the fundamental bullish thesis on sterling is far cloudier.
Oil nudged up despite the rise in US crude inventories. WTI (Aug) pressed up above $42 after the EIA reported a crude oil inventory build of 4.9m barrels in the week to July 17th, vs the 2m barrel draw expected, albeit the API print had already flagged a likely increase in stockpiles. Stocks at the Cushing, Oklahoma, hub rose 1.375m vs last week’s build of almost 1m.
Gold continues to march higher as real rates hit all-time lows with 10yr TIPS finishing at –0.88%. Gold pressed up to $1,876 this morning to mark a new 9-year peak. The momentum that is chasing this trade should easily enable bulls to find the $1921 all-time high last achieved in 2011 – you get the feeling there is a lot of appetite to take out this level, but expect some considerable resistance and another pullback to $1800 may be required first. After clearing the all-time high there is a chance of a move to $2k, but we should question whether the support from declining real rates will continue to act as a driver of gold prices without a significant inflationary follow-through. Nevertheless, it’s clear that the combination of a very uncertain macro backdrop, fresh geopolitical risk, the threat of inflation stemming from the massive injection of both monetary and fiscal stimulus make gold a clear-cut Covid winner.
Week Ahead: Tesla earnings and vaccine hopes to drive sentiment
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|