US pre-mkts: Bank earnings strong, Cat upgrade

Equities
Investments

Very strong bank earnings coming through this morning – JPM led the way yesterday and the latest numbers from peers also look strong. Real good signs of improving loan growth in particular is a positive for BAC.

US pre-market key pointers

Bank of America (BAC)

Strong performance from Bank of America.

  • Net income of $7.7bn, EPS of $0.85 vs $0.71 expected
  • Revenues up 12% year-on-year – JPM was just up 2.2%
  • Net interest income up 10% to $11.1bn – most rate-sensitive of the big banks
  • Record M&A activity – Noninterest income up 14% to $11.7bn, driven by record asset management fees, strong investment banking revenue and higher sales and trading revenues
  • Expenses down on the quarter, flat on the year
  • $624m clawback from bad loan provisions – bottom line flattered less than the JPM numbers.
  • Stock up pre-mkt to tune of 2.5%, having fallen 0.92% yesterday in sympathy with JPM, which is trading mildly higher in pre-mkt.

Wells Fargo (WFC)

Wells Fargo results showed:

  • Net income of $5.1bn, EPS $1.17 vs $0.98 expected
  • Net interest income was down 5%, due to lower loan balances that reflect soft demand, also higher prepayments, lower yields
  • Results include $1.7bn decrease in credit loss provisions – equivalent to $0.30 per share.
  • Pre-mkt trades +1%, having slipped 1.3% yesterday.

Meanwhile, ahead of the cash open on Wall Street, US futures indicate all the major averages will open higher. SPX seen opening up 30+pts at just under 4,400, Dow Jones +200pts at 34,610, NDX at 14,900. Risk looking solid.

  • Walgreens Boots Alliance reported earnings $1.17, vs $1.02 expected, revenues $1bn ahead of expectations, cost-cutting programme a year ahead of schedule. US comparable sales up 8.1% from a year before.
  • UnitedHealth shares +2% pre-mkt after reporting earnings beat and raised guidance.
  • Caterpillar +1% pre-mkt, bouncing of its weakest level since Jan, as Cowen advises clients to buy ahead of the first ‘megacycle’ in 14 years, initiates with ‘Outperform’ rating and PT of $241.
  • Tesla shares are up pre-mkt to their best level in 7 months.
  • Boeing down 1% pre-mkt after report says co. dealing with new Dreamliner defect, production problems
  • FTSE 100 at HOD just a whisker under 7,200
  • Dollar continues to struggle. GBPUSD making a fresh 3-week high at 1.37334.
  • Gold also trades at HOD at $1,800, sitting on its 100-day SMA.
  • Treasury yields lower, 10s at 1.532%

Earnings season: five stocks on Goldman’s radar

Equities
Investments

Earnings season is underway. Now’s the time to take a look at some stocks that could provide investors with more than the Wall Street consensus would tell you.

US earnings season Q3 2021

Goldman reviews earnings season stocks

Sometimes investors like to break away from the pack. To dare is to do.

It’s all about spotting opportunities from stocks that may be overlooked by Wall Street.

As reported by CNBC, Goldman Sachs has been scanning Wall Street for stocks it believes hold promise for investors looking for something different this earnings season.

Earnings season began in earnest this week with major US banks leading the charge as always. You can use our earnings season calendar to see which megacaps are reporting this quarter and when.

In a note to investors published on Wednesday, Goldman said it expects stocks to rise 6% this quarter. Its spotlighted stocks, however, could offer upsides of 14%.

The investment bank deployed a fairly complex methodology when analysing Q3 2021 earnings season stocks. 1,000 companies in Goldman Sachs’ coverage universe were scanned at the 25 best opportunities were selected when considering EPS of $5 per share over the next four quarters.

After this, the results were filtered through analysts which were above or below Thomson Reuters’ consensus for the upcoming quarter, and the year ahead, “on a key financial metric.”

“Single stock put-call skew is at its highest level in over a year,” Goldman said, encouraging investors to make out-of-money calls on its out-of-consensus stock picks. “Given investors are well hedged, even modest earnings beats are likely to drive a relief rally in specific stocks (on earnings day) and the broad index (over the next three months).”

The out-of-consensus stocks to pick

Please note these are only Goldman Sachs’ recommendations – not hard and fast must-buys. Only invest if you are comfortable with the risk of potential capital loss.

The top five stocks Goldman has selected to watch this earnings season are:

  • Uber
  • Signature Bank
  • Yeti
  • Bank of America Corp
  • Lowe’s

Let’s start with Uber. The ride-hailing service burst onto the scene several years ago as a taxi industry disruptor. Goldman’s Eric Sheridan thinks the app can deliver a 37% upside over the coming year. Sheridan’s earnings estimates put Uber 20% higher than Wall Street consensus right now too.

The idea is that if Uber can close the supply/demand gap, then this should lead to normalised ride pricing, higher demand in general, and thus pre-pandemic profits.

Outdoor retailers Yeti could offer even better upsides than Uber. Goldman considers Yeti a “growth compounder with best in class authentic brand positioning.” It could deliver upsides of 44% if Goldman is on the money. In terms of EPS, Yeti’s could be 8% higher than analysts think in the third quarter and 3% higher in the next.

Investment banks are usually amongst the first to start reporting on Wall Street come earnings season. It’s certainly true this year. Of these, Goldman flags Bank of America as the one to keep an eye on. Goldman’s analysis puts BoA’s upside at 7% – some 10% higher than consensus.

Bank of America’s potential has been pegged to “significant remixing of cash into securities” by Goldman.

Smaller banks are represented by Signature Bank. Ryan Nash, a Goldman stock analyst, forecasts earnings-per-shares to come it at 7% higher than Wall Street forecasts this quarter and 5% for the next four. Signature is on course for a revenue-beating Q3, driven by an acceleration in loan growth.

Rounding off Goldman’s section of potentially consensus-beating stocks is Lowe’s. The DIY probably benefitted more than most from the pandemic last year, but this quarter it could offer investors an upside of 12%.

Goldman’s Kate McShane said Lowe’s position is stronger now than in the last 6-12 months, thanks to bringing forward its seasonal inventory purchases.

These stocks could help you ride the next crypto surge

Equities
Investments

Bank of America has picked out a number of stocks that could help investors get a slice of the cryptocurrency pie. Here they are.

Cryptocurrency stocks

Digital tokens on the rise?

Despite what some objectors and sceptics might say, it looks like cryptocurrency is here to stay.

Bitcoin has recently started heading upwards again. The token, which is the most popular in the world, recently passed the key $57,000 level – the highest levels since May. April’s $65,000 all-time high is still the target for BTC, but the industry is not just Bitcoin.

There are hundreds, thousands, of other digital tokens available. The industry’s collective valuation is currently north of $2 trillion – higher than the GDP of Canada with its bountiful natural resources.

Coins like Ether, Ripple, Cardano and even meme-based internet favourite Dogecoin, all have their own fans, representing billions in capital.

Cryptocurrencies seem like they’re becoming more resilient to outside pressures too. For example, Bitcoin’s current high performance flies in the face of China’s recent crypto ban. Before, such a measure would have sent the token spiralling downward. Now, even a flat out ban from one of the world’s foremost crypto markets isn’t enough to slow it down.

That being said, digital token prices can still show high volatility. Many investors and traders are still unsure if it’s a smart investment. Others prefer to stick with old school wealth stores like gold. But many are finding crypto a worthwhile pursuit. It’s basically down to how much volatility you can stomach.

But coins do not just generate themselves. To operate, the crypto industry requires an extensive ecosystem. It incorporates everything from technology providers, blockchain developers, payment platforms and plenty in between.

For investors to get involved in the next crypto gold rush without committing to coins, there are ways they can get involved. Of course, it goes without saying that any investments carry risk of capital loss. Investing should only be undertaken if you are comfortable taking any losses.

With that in mind, Bank of America analysts have selected several stocks they believe could offer investors value as the crypto industry grows.

Bank of America’s crypto stocks to watch

“A new generation of companies for digital assets trading, offerings and new applications across industries, including finance, supply chain, gaming and social media has been created. And yet we’re still in the early innings,” Bank of America said in a note, as reported by CNBC.

The bank’s digital finance stock selections look at the wider cryptocurrency sector.

Let’s start with power. Cryptocurrency mining, the process of minting fresh coins, is power intensive. Very power intensive. In fact, in 2020, Bitcoin mining alone used as much energy as Sweden.

According to Bank of America, nuclear power firms could be ready to pounce on the crypto sector. Environmental concerns around token mining’s emissions could push miners to look for low-carbon alternatives to their current options. With low emissions and round-the-clock reliability, nuclear could be the ideal fuel source for crypto mining.

With that in mind, BoA suggests Exelon, NRG Energy and Vistra could be energy companies to watch if they move into the crypto space.

Let’s talk data centres. Since China prohibited crypto mining in its territories, there’s been a mass exodus of mining operations. It looks like North America might become mining next hotspot.

“As digital asset mining migrates to North America due to China’s near complete ban of mining activities, public data-centre companies could view this niche market as an opportunity,” BoA analysts said.

A data centre boom may be on the way. To capitalise on this, Bank of America analysts recommend two stocks: Digital Reality and Equinix.

“Greater focus on the energy consumption of digital asset mining could increase demand for data centre operators with greater renewable energy sources,” the analysts said. “Equinix data centres are powered with 37% renewable energy with a target of 100% over the next decade.”

Payment platforms and banks should also be considered.

PayPal in particular is a “must own” for Bank of America.

“We view [Paypal] as a scarce asset with accelerating structural tailwinds, while the company is well on its way to transforming its digital wallet/app into a financial ‘Super App’ for its massive global consumer base,” the bank said.

Analysts flash their headlights at these Tesla-rivalling EV stocks

Equities
Investments

More EV stocks to potentially rival Tesla have been flagged by a couple of big investment banks this week. Are they about to put the pedal to the metal?

EV stocks

Are these EV stocks worth watching?

Most of the conversation around electric vehicles includes Tesla in some shape or form – even pieces about its rivals.

But Tesla, despite its reputation and size, is not the only electric car manufacturer in town. Legacy marques are starting to rapidly expand their battery-powered vehicle ranges. VW, Ford, and GM alone are planning to spend in excess of $150bn to develop batteries and cars going forward.

Tesla’s competitors are now a mix of the old and the new. It’s likely the EV space won’t just be dominated by Elon Musk’s brand. It will no doubt remain a big player, for sure, but other companies, both established and up and coming, are revving their engines to get their own share of the EV market.

As such, electric vehicle stocks are quickly driving their way into many investors and traders’ portfolios.

JPMorgan’s electric vehicle stock picks

JPMorgan’s head of European autos equity research, Jose Asumendi, recently said that his two top EV equities to watch are Stellantis and Daimler.

“Stellantis is one of the leaders with electrification in Europe,” Asumendi told CNBC. “What I like about Stellantis’ strategy is not only the product launches but also the battery strategy,”

Stellantis is a joint venture between two of Europe’s most revered car builders: Peugeot and Fiat. A constellation of 14 brands fall under this umbrella. Vauxhall, Opel, Citroen and EV-spin off DS, Chrysler, Dodge, Jeep and Maseratti are just some of the badges Stellantis boasts.

Importantly, the brand is committed to EV development as well as battery research and construction.

In H1 2021, just 14% of Stellantis deliveries were electrified vehicles. In the US, the figure was 4%. With sustained multi-billion-dollar investment, the carmaker expects this to rise to 70% and 40% in these respective territories by 2030.

Key to Stellantis’ stock success will be how the brand copes with a) the global chipset shortage and b) ongoing restructuring of some of its constituent brands.

“We thought all these brands [that Stellantis owns] were going to die at some point and go bust, but it turned out to be different,” Asumendi said. “But now CEO Carlos Teveres is doing the same thing with Alfa Romeo, Maserati and Fiat. So Stellantis offers real opportunity to invest into this European restructuring equity story.”

The company also formed an entity ACC to develop property battery tech alongside Asumendi’s next pick Daimler.

Daimler is Mercedes-Benz’s parent company.

It is planning to split out its truck division away from the Mercedes cars section by the end of the year, creating two separate entities without diluting the brand.

“You will have two companies clearly run under the same hat: Mercedes-Benz Cars and Mercedes-Benz Trucks,” Asumendi said.

Asumendi was also keen to heap praise on Daimler CEO Ola Kallenius and CFO Manish Thakore. Together, the pair have been able to drop the fixed cost base of a Mercedes-Benz car by 20%. That suggests better margins for the prestige brand going forward.

But as this is an EV-focussed piece, we have to mention Daimler’s electric ambitions. In July, the German giant announced its plan to spend $47bn on overhauling its output to fully embrace electric power. No new petrol-powered models will be introduced from 2025 onwards. Bad news if you enjoy the throaty roar of an AMG V12, good news for Mother Earth.

Asumendi set price targets for both Stellaris and Daimler based on their backing of electric transport. For Stellantis, the figure is €28 – quite above the current level of €16.51 (up 3.5% on the day at the time of writing. Asumendi’s Daimler price target sits at €98. Daimler is also currently up around 3.5%, trading for €78.38.

Goldman upgrades NIO

NIO is essentially the Chinese Tesla.

The company’s stock has pulled away somewhat from highs seen at the start of January to the tune of 50%. But, according to Goldman Sachs, the EV brand has high potential.

Goldman recently upgraded NIO from a neutral to a buy with a target price of $56. At the time of writing, NIO was up 6.1% on the day, exchanging hands for $35.81.

As well as launching a collection of SUV models aimed squarely at the domestic market, NIO has also brought the ET7 saloon to market. This has caught Goldman’s eye.

The ET7 itself is a luxury sedan, designed to compete with the Tesla Model S and European rivals like the BMW 7 Series or Mercedes-Benz S-Class. The two German models regularly push $200,000 in China.

That’s why the ET7’s pricing, more in line with the BMW 5 Series or Mercedes E-Class, has attracted Goldman.

“The price point makes ET7 China’s most expensive car model ever launched by domestic manufacturers, strengthening NIO’s brand equity in the premium space,” Goldman explained in a research note.

NIO’s battery as a service model, where users essentially lease their battery from the car maker, is also a plus point for Goldman. It does seem like a rather anti-consumer move, essentially a subscription to power your car on top of tax, insurance, and electricity, but it would present an extra revenue stream for the brand.

EV stocks: legacy marques hit the electric accelerator

Equities

Tesla might be the face of electric vehicles, but long-standing manufacturers are matching its spending. Here are some EV stocks to watch.

EV stocks

2021 & electric vehicles

Electric vehicles really do look like the future.

Sales volume tripled year-on-year in H1, according to Woods Mackenzie research. WoodMac predicts 6 million electrically-powered vehicles will be sold by the end of 2021. That’s even with chipset supply constraints.

No year to date will have seen such internal combustion engine sales displacement should WoodMac’s forecast prove true.

We all know of Tesla’s electric vehicle market dominance. Many newcomers in the EV space are in danger of being left in Tesla’s shadow. While the likes of NIO and Li Automotive are attempting to put up a fight, as new brands go Tesla is driving far into the distance.

But what about legacy carmakers? These, in theory, have the supply chain capability, resources and existing market presence to potentially dwarf Tesla going forward. It’s only a matter of time before the sleeping or drowsy giants wake up and put their full industrial might behind EVs.

We’ve already seen the likes of Citroen and Volvo spin off their electric offer into new brands (DS and Polestar in this instance). Indeed, Polestar looks like it’s becoming very much its own entity and is even planning a $20bn SPAC IPO sometime soon.

Even Ferrari, which has resisted the call of pure electric power, for so long is following in the wake of luxury automakers Porsche and Aston Martin in offering a fully EV supercar by 2025.

But not all car manufacturers are created equal. There are those that dominate with their major global presence. These are the ones responsible for the global prevalence of motor vehicles to begin with. And it’s these that have enormous potential.

The largest automakers and conglomerates are pouring billions into electric vehicle research. Some are better prepared than others, but this level of investment can pay dividends in terms of positive stock price movements.

Traders and investors thinking about diversifying their portfolios with EV stocks may find some inspiration below.

Legacy EV stocks to watch

Ford

Henry Ford pioneered mass auto manufacturing as we know it. Now the company he started is keen to add his level of ingenuity to their model line-up.

Ford recently announced it was planning on spending $30bn on EV R&D by 2025 and expected 40% of its total sales to come from this market segment by 2030. Its goal is to launch 16 fully electric vehicles by 2022.

Pre-orders for the electric F-150, the truck that the company is essentially built on, have already reached 150,000. Oh, it also has plans afoot to invest $11.5bn in a battery-making facility to support the F-150 exclusively.

F-150 sales average 100 trucks sold per hour. Mr Musk with your Tesla Cybertruck: Ford is coming for you.

In terms of share price performance, Ford is up nearly 2% in day trading at the time of writing.

As well as its electric plans, Ford has been boosted across the previous months by its Q2 2021 earnings. During this time, the brand recorded a surprising $1.1bn profit, readjusting its earnings per share from a loss of $0.03 per share up to EPS of $0.13.

Ford raised its expectation for full-year adjusted earnings before taxes by about $3.5 billion, to between $9 billion and $10 billion.

Additionally, since CEO Jim Farley took control in October 2020, Ford’s share price has soared 113%.

General Motors

According to its website, General Motors plans to invest $35bn between now and 2025 towards creating a fully electric future.

With this 30% rise in dedicated electric vehicle spending, the US’ number one carmaker certainly has Tesla and other rivals squarely in its crosshairs.

In practical terms, this means a complete model overhaul and construction of dedicated production facilities. That includes two new battery megafactories. One of these is already underway in partnership with Korea’s LG Energy Solutions, while another site is being prepped in Tennessee.

GM confirmed in November it would speed up the rollout of new EVs, with plans to offer 30 models globally by 2025, up from a prior target of 20 by 2023. Chief Executive Mary Barra said the automaker wants to exceed annual sales of 1 million EVs in the United States and China by 2025.

General Motors also recently announced it plans on investing $300m into Chinese auto-pilot developers Momenta to help grow develop self-driving technologies. This could also help GM get its own slice of the lucrative Chinese automotive market – the largest in the world.

In terms of share price outlook, Goldman Sachs recently came out as saying it thinks GM is undervalued.

“General Motors (NYSE:GM) is seen as an attractive stock that captures the benefit from an industry recovery in production as well as opportunities to benefit from EVs and advanced driver-assistance systems,” Goldman analyst Mark Delaney said.

GM started the week on a good footing, rising 2.25% on Monday 27th September. It has subsequently flattened but there are reasons to look at the stock in a bit more depth.

Its E/P ratio of 6.04 makes it undervalued. Additionally, analysts expect its earnings to fall by 5.3% this year before rising at an average annual rate of 13.25% over the next five years. Might be worth a look in the short term.

Volkswagen

Volkswagen’s own spending plans dwarf those of the American rivals above.

Across the next five years, the Wolfsburg-based marque will have spent $86bn on a fully comprehensive overhaul of its production capabilities and model collection. Looking further afield, it plans to make 70 fully electric vehicles by 2030.

231,600 VW EVs were sold in 2020. It has plans to double that to 500,000 by the end of 2021. Adding in plug-in hybrid models, overall sales target for vehicles involving some modicum of electric power comes to 1.5m.

VW also has its eyes on the Chinese prize. It has announced it is launching its ID.3 and ID.4 models in China soon. The ID.4, an electric SUV, will be key to Volkswagen’s Asian expansion plans as this particular car style is a favourite amongst Chinese consumers.

The company’s stock has increased 120% from 2018 up until now, although Forbes believes it is currently reaching the limits of its mid-term potential.

Future earnings will be key in accruing decent performance for VW.

Forbes’ breakdown of the FY2022 outlook is as follows:

  • Revenues – €254 billion
  • Net income – €13.8 billion
  • EPS – €2.75
  • Stock price valuation – $47

Of course, VW’s work also includes that of Audi which is launching its own range of luxury EV models. All of its eggs are currently in one big electric basket, but it could pay off as the world moves away from fossil fuels.

Some cannabis stocks are popping. Here’s why.

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Investments

A number of cannabis equities are showing strong movement today as a cohort of pro-marijuana congressmen has taken the chance to potentially push some legalisation legislation through.

Cannabis stocks to watch

Major growers and distributors of cannabis, both medical and recreational, are starting to pop in trading.

Tilray is up 3.6% while Canopy Growth is showing similar numbers at 3.7%. Sundial Growers and Curaleaf had gained 1% and 3.7% respectively yesterday too. Aurora Cannabis joins its coteries in showing growth, clocking in at 3.7%.

Our Cannabis Blend, which groups together five leading growers, is also showing a 3% daily bump.

It’s clear that marijuana stocks are doing well today. The question is why?

Pro-cannabis bill tacking onto Pentagon budget resolution sends stocks upwards

The US military and the worldwide cannabis industry don’t seem like the ideal bedfellows. However, some congressmen have spotted an opportunity to tie the two together – or at least piggyback off the back of Pentagon budget bills.

On Tuesday, the House of Representatives’ version of the SAFE Banking Act was tacked onto the 2022 National Defence Authorisation Act (NDAA). The NDAA basically approves the Pentagon’s budget for the coming year.

For context, the SAFE Banking Act makes it legal for companies to make profit off the sales and marketing of recreational marijuana products. There are billions of dollars at play here, so if it passes into law, the stocks mentioned above could gain massive traction.

Quite cleverly, Rep. Ed Perlmutter of Colorado, one of the SAFE Act’s key exponents, rationalised the bill’s importance on a national security level. It’s an impressive piece of theatre to equate legalised cannabis with a safer, securer United States, but in a military-focussed nation like that, it’s an important piece of rhetoric.

Perlmutter said: “This bill will ill strengthen the security of our financial system in our country by keeping bad actors like foreign cartels out of the cannabis industry. This is a public safety and a national security matter — very germane to the issues at hand, dealing with foreign cartels.”

As the representative for Colorado, Perlmutter will have had first-hand experience with legalised cannabis. As of 2021, over $10bn worth of marijuana products have been legally sold in Colorado – the first state to fully legalise recreational use. Of that, the state government has taken a $1.6bn slice.

But what about crime? Perlmutter’s words are based on public safety. According to a report by the Colorado Department of Justice, between 2012 and 2019, the state reported a 68% drop in cannabis-related arrests. This stands to reason. Makes something legal that was once illegal then the arrest rate will drop.

However, the number of DUI arrests went up by 120% across the same period. Not a great look when making a public health argument.

The SAFE Act’s overall passage will presage a wider debate on whether to just federally legalise marijuana anyway, rather than legislate it piece by piece. It would perhaps be an easier option than a lengthy legal process.

It’s thought that, sooner or later, cannabis will become fully legalised for recreational use in the United States. If that happens, it may be a bellwether for other countries and usher in legalisation on a global scale.

But let’s not get ahead of ourselves. Movement is being made, which is good for cannabis stocks like those mentioned above, but there is still some way to go yet.

The likes of Tilray and Canopy Growth have posted strong growth numbers this year. Canopy’s Q1 revenues 2022, for example, were up 23% year-on-year in August.

Reports show Tilray’s revenue grew by 27% to stand at $513 million. The company also reported an adjusted EBITDA of $40.8 million, representing a massive 598% year-over-year increase.

There are big, big sums coming out of these companies – but everything now hinges on how the US proceeds regarding further Cannabis industry growth prospects and share price performance.

IAG take off on US travel news

Equities
Investments

IAG shares just took off on reports the US is set to ease restrictions on UK and EU travellers.

Double-vaccinated passengers will be able to fly to the US, ending a total ban that has been in place since the pandemic, according to a report from the FT.

BA-owner IAG is a clear winner from this as its transatlantic business has been all but mothballed since the grounding of its jets due to the US policy.

IAG rallied over 10% on the announcement before paring some gains to trade +9.5% as of send time, whilst Air France KLM and Lufthansa added to earlier gains to trade around +6% higher.

Big read across for associated stocks – SSP rallied from negative territory for the day to trade up 4.5%, whilst WH Smith, which had also been trading lower, is now up 2%. And it’s more good news for Rolls-Royce, whilst TUI and Wizz Air are also having a good day.

EasyJet – though no transatlantic player – also up sharply as it indicates I think a direction of travel for the airlines that is way more positive than we have seen since really the peak of the vaccine optimism late last year and early 2021.

Whether or not the US makes the green list or not come October is another matter. I would assume the loosening of the rules – a win for the EU and UK – is based on the quid pro quo that they will make it easy for their citizens to travel to the US. Levels of vaccinations in the US are high enough to outweigh concerns about cases.

IAG: Big pop but only its highest since late August, though the move higher speaks of a more positive outlook. Lots of caveats and reason to be cautious still – getting bums on seats and filling those planes again will take much longer – who’s going to wear a mask for 9 hours? And what vaccines will be acceptable? Will children need to have a vaccine passport, too? A step in the right direction for sure nonetheless.

IAG price chart 20.09.2021

US pre-markets: futures extend losses

Equities
Investments

Scores on the doors midway through the European session and an hour before the US cash open: in summary, not good. As per the morning note, China risks abound with eyes on the Evergrande contagion. Markets also have one eye on inflation and the Fed meeting this week, plus the German election coming on Sunday. Many people – most investors seemingly – have been eyeing a correction in Sep/Oct after such a solid ramp this year and they’re getting one, it seems. If you have the Fed post max-accommodation – that is, on a path to tightening not loosening, inflation sticking around much more than optimists had thought, earnings growth stalling, and the economy past peak growth, you have the kind of perfect powder keg for a pullback and Evergrande may be the spark to set it off. Add to that a German election and an energy crisis in Europe and it is not the ideal backdrop for risk. The end game is not set here – a lot depends on what Beijing is prepared to do – or when it thinks it has sent a strong enough message to indebted companies in the property sector.

Euro Stoxx 600 down 2.3%, set for worst day since Dec 2020. DAX – 2.7% – its life as a 40-constituent index not off to the best start. FTSE 100 –1.7%, not as badly hit – make-up of the index and some pronounced sterling weakness alleviating some of the worst effects. Basic materials -4%, led by Anglo American -6% as iron ore prices collapse. Polymetal, Sainsbury’s, Astra and IAG managing to rally but 9:1 decliners to advancers tells the story of the day.

US futures keep extending losses – no signs of let up today and whilst we can expect some bounce at some point when cash equities are open for trade this may well get a lot uglier before it’s better. Dow called off 650pts, biggest decline since July 19th, while the S&P 500 is called down roughly 80pts at 4,353 for its biggest fall since May – looking perhaps to test the 100-day SMA at 4,326. Tails up for volatility longs with VIXX is north of 24 and highest since July 19th. There were ~10% corrective moves in Sep 20 and Oct 20 – a similar move would see SPX return to test its 200-day SMA near 4,100.

The 5-min chart for e-minis shows how relentless the selling has been this morning – not a freefall, but very steady.

US 10yr yields slipping sharply to 1.31%, on track for biggest decline in 5 weeks – reflects broader market tensions around the sell-off and the potential fallout Evergrande could have on the Chinese property sector and therefore growth. Gold not doing an awful lot despite the risk-off sentiment and drop in yields as the dollar is catching some very solid bid, keeping the metal’s progress in check around $1,760.

Bitcoin continues to feel the heat as the entire crypto space gets a pounding today. Who knew the crypto market was so correlated to Chinese property stocks…suffice to say this is not an uncorrelated asset. Bitcoin -9% with a $42k handle as it tests the Aug lows.

Bitcoin Chart 20.09.2021 PM

The FTSE 100 keeps making new lows today – the rally of 6% from Jul 19th through to the August peak is now in jeopardy as the index trades around 6,840. Looking for a bounce here, perhaps to around 6,900 but longer-term momentum clearly with the bears. That July swing low around 6,800, which sits right on the 23.6% retracement so we look to this level to offer some near-term support. If this cracks – and we look to see what kind of follow through we get when the US cash equities open at 14:30 for a guide – then we consider the next level to watch out for is around 6570, the 38.2% retracement.

UK 100 Futures 20.09.2021

Meet the new DAX 40 constituents 

Equities
Indices

The German flagship index DAX is being increased to 40 constituents from September 20th. The change is the biggest in the history of the index and whilst it is not expected to materially alter the pricing of the index, it could affect the way investors view it. 

So, who are the new DAX members? 

Airbus SE 

Airbus is Europe’s answer to Boeing. Based in the Netherlands, it operates in the aerospace and defence industry. Through to September 10th the stock had rallied 26% year-to-date after taking a battering during the 2020 selloff, though it has yet to recover previous highs. Revenues rose 30% in the first half of 2021 from a year earlier, whilst the six-month period also saw the company return to profit after posting a loss of almost €2bn a year ago. 

Zalando SE 

Zalando is an online shoes and fashion retailer. It has undergone rapid expansion, accelerated by the Covid-19 pandemic as shopping trends shifted online. Revenues surged by 40% in the first half of 2021, whilst net income for the period grew from €36m a year before to almost €155m. Shares were trading just shy of €100, with the company commanding a market cap of around €25bn. 

Siemens Healthineers AG 

Siemens Healthineers develops technology used predominantly in the healthcare industry. Products in areas such as diagnostic and therapeutic imaging, laboratory and point of care diagnostics, and molecular medicine, are among its specialities. YTD gains of around 36% have seen it ascend all-time highs as demand for its products looks to be heading only one way. In the nine months to the end of June revenues were up 21% and net income up 29%. 

Symrise AG 

Symrise is a supplier of fragrances, flavourings and ingredients used in cosmetics. Shares are up roughly 10% in 2021 and the market cap has grown to over €16bn. In the six months to the end of June, revenues grew 5% to €1.91bn, whilst net income increased 16% to over €196m. 

HelloFresh SE 

HelloFresh is an online food services company that delivers pre-portioned ingredients to subscribers, allowing them to make home-cooked meals based on a recipe provided. As the market for online, home-delivered food grew rapidly during the pandemic, HelloFresh has enjoyed rapid growth in sales and its share price. Sales rose to €1.56 billion in the June quarter from €972 million a year earlier. It sees full-year revenue growth of 45-55% this year. Shares have rallied over 40% in 2021. 

Sartorius AG Vz  

Sartorius manufactures pharmaceutical and laboratory equipment, placing it squarely at the heart of the biotech sector. Needless to say, growth has rapid. In the first half of the year order intake rose 82.4 percent; sales revenue was up 60.1 percent; whilst underlying EBITDA margins improved markedly to 34.1 percent. Underlying EBITDA rose 89.2 percent to €555 million, whilst net profit climbed 108.7% to €259m. Shares in the group have risen 125% YTD. 

Porsche Automobil Holding  

Porsche makes cars. It is a holding company of VW with investments in the automotive industry. Shares have had a good year, with the stock up 50% YTD to its highest since the financial crisis of 2008. 

Brenntag SE  

Brenntag is a chemical distribution company based in Essen. In the six months through June 2021, revenues rose 9% to €6.6bn but income fell 2% due to a 20% spike in operating expenses. Nevertheless, shares have made all-time highs this year with a YTD gain of 32%. The consensus rating for the stock is ‘hold’ based on the 12 analysts who cover the stock. 

Puma SE  

Puma is a multinational that designs and manufactures athletic and casual footwear, apparel and accessories. It’s done well from the growing demand for leisure clothing (see JD Sports) and probably got a boost from Italy – who wear Puma kit – winning Euro 2020. The stock is up roughly 15% so far in 2021. 

Qiagen N.V. 

Qiagen is a diagnostics company that provides sample and assay technologies for molecular diagnostics, applied testing, academic and pharmaceutical research. It’s been a leading provider of tests for Coronavirus and variants. Profits doubled in the first six months of the year but was forced in July to cut its earnings and revenue guidance for the year because as it anticipates vaccines will cut demand for tests. 

GameStop earnings look ahead

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Meme stock favourite GameStop (GME) is set to report Q2 results after the market closes on Wednesday, September 8th. The stock, which was at the heart of the Reddit trading frenzy in January, is up more than 1,000% YTD and closed Tuesday’s session at $199, a loss of $3.45, or 1.7%, on the day.

Flush with the proceeds of a recent equity raising, the company has been tackling debt and seen encouraging sales progress, with growth across hardware, accessories and collectibles categories.

What should investors expect from GameStop earnings?

Markets expect losses to halve, with the company seen reporting a loss of $0.70 per share vs $1.40 per share seen in the same period a year ago. Revenues are expected to rise 20% year-on-year to  $1.1 billion.

In June the company said it would continue to suspend guidance for 2021 due to the pandemic, but said net sales were the best metric to follow. “The company’s second-quarter sales trends continue to reflect momentum, with May total sales increasing approximately 27% compared to last year,” the company stated.

Ultimately though the stock remains disconnected from fundamentals so the price action is more about expectations for the turnaround strategy. Given its propensity for volatility, traders should be willing to expect noisy price action around the results.

On the chart, we can see that after a run lower through June and July the subsequent rally has stalled and there is a clear loss of momentum to the upside. Bulls looking to break $230 to be encouraged at a return to March and June swing highs around the $340-350 level.

Chart showing GameStop price action on 08.09.2021.

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