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Thematic investing: tackling climate change
In our latest thematic investment guide, we look at the wider climate change picture.
How to invest in renewable energy & firms tackling climate change
The wider environmental picture
Our previous thematic investing guide to renewable energy flagged some of the companies specifically fighting the green fight through power generation. Climate change is not just about sustainable energy, though. Lots of moving parts comprise the anti-global warming engine.
Worldwide, masses of time and energy is being poured into combatting global warming. In the first few months of his Presidency, Joe Biden has pledged to increase funding into clean energy sources, reduce the US’ carbon footprint, re-enter the US into international climate accords.
The 2016 Paris Climate agreement, where 197 nations pledged to limit warming temperatures, is rightly seen as a watershed moment in the history of global change. But there is still more to be done.
That’s why, while it’s important to continue to invest in renewable energy, other companies are doing important work outside this sector. Electric vehicles, for example, are one way of tackling rising emissions. Less fossil fuel burned to power vehicles should greatly reduce greenhouse gas volumes in the atmosphere.
Q1 2021 EV sales were up 81% in the US. In China, they are up 239%. The likes of Tesla, NIO and Toyota are real pioneers here, pushing either fully electric or hybrid technology to new areas. Legacy carmakers like Renault, Peugeot, Audi, Ford, and VW are pushing ahead with integrating more EVs into their product lines.
We also see big tech firms doing their bit. Amazon, Alphabet and Facebook have all made strong carbon neutrality commitments. For instance, Amazon head honcho Jeff Bezos launched a $10bn climate change fund and committed the e-commerce behemoth to clean up its supply chains. Alphabet and Facebook are looking for renewable sources to power their energy-hungry data centres and have pledged to continue to invest in renewable energy.
Here are some stocks from firms helping to combat climate change that wouldn’t look out of place in a green-themed investment or trading portfolio.
Thematic investing: climate change focussed stocks to watch
NIO stocks have actually been sliding at the time of writing as part of a wider tech sell-off in response to rising US inflation and bond yields. But there are reasons to be cheerful regarding the Chinese EV manufacturer’s future.
Its Q1 2021 earnings report, released in late April, showed an impressive 19.5% rise in gross margin, beating market estimates, and coming in 3% higher.
Improved sales data shows NIO is on a growth footing too. The company sold 44,000 vehicles in 2020, 108% more than in 2019.
A small unit count initially, especially compared against someone like GM, which sold over 2 million vehicles in the same period, but the growth is the important factor here, not the total number of units sold.
In Q1 2021, NIO had already sold 20,600 vehicles. That’s a 423% increase. The automaker is also launching three new models, including an SUV, this year to gain ground in several market segments.
Factor in estimates that China, already the world’s largest automotive market, is expected 13 million annual EV sales, along with the emergence of China’s middle class, makes NIO an EV stock with plenty of juice left in its batteries.
TPI Composites is a wind energy stock that is looking positively breezy. The firm produces blades for wind farms and other pieces of equipment for wind farm construction and operation.
TPI notched record revenues in its Q1 report, totalling $405 million. This represented a not insubstantial 13% increase against Q1 2020. The company produced 814 sets (a set has three wind blades) this quarter, which was 11% more than the same period last year.
The firm has spent large sums in the past couple of years to improve its manufacturing output. It now has production facilities in the US, Mexico, China, and India, putting it squarely in regional supply chains. TPI is also now looking to reduce its costs going forward, putting it back on the path to profitability.
In sales terms, TPI’s first-quarter net sales had increased by $48 million to $404 million – a 13.5% increase when compared to net sales of $356 million over the same period in 2020. It also recorded a 12.7% increase in turbine blade sales to $42 million.
Of course, TPI is up against some stiff competition in the form of firms like Vestas, but its combination of higher sales and a commitment to reducing operating costs point toward higher profits moving forward. TPI is one of the wind energy stocks to watch.
As stressed earlier, when you’re looking at thematic investing, don’t just stay within renewable energy stocks or wind energy stocks. Think of the wider picture. Companies that have committed to renewable energy may not be suppliers or producers themselves.
Take Google owner Alphabet for instance. The tech giant has long been praised for its sustainability commitments. By 2020, Alphabet claimed it was running on 100% renewable energy. Its data centres are some of the most water-efficient in the world, using 80% less H20 than the typical centre. Alphabet has plans to build more.
Alphabet’s earnings beat estimates in the first quarter of 2021. Revenues grew 34%. YouTube ad revenue was up 50% year-on-year. Earnings per share came in at $26.29 per share against the expected $15.82.
Alphabet’s core business is not related directly to clean power generation. However, it’s a good example of a major corporation with a proven track record of delivering on its emissions-cutting promises. Therefore, it would not be out of place alongside other more-focussed stocks in a climate change combatting portfolio.
Remember the risks of investing in renewable energy & climate change stocks
Whether investing in wind energy stocks, renewable energy, or companies working to fight global warming in general, remember the basic risks. Investing and trading are both inherently risky. Only invest or trade if you can afford to take any potential losses.
Billionaires, blocks & stocks: super rich shareholders cash in
Some of the world’s richest shareholders are reaping major windfalls from equities sales in 2021.
According to research by Bloomberg, the likes of Amazon’s Jeff Bezos and Google’s Sergey Brin are turning to stock sales to improve their already substantial fortunes.
A 14-month long bull market is helping industry insiders cash in. $24.4bn worth of equities have been offloaded in the period up to the first half of May 2021, compared against the $30bn sold in the same manner throughout the whole of 2020.
The bulk of these sales have been undertaken via trading programmes, a common practice for shareholders of this status.
Usually, large shareholders will sell stock in planned intervals. However, it’s the prolonged stock market rally that’s really made these deals pay off. Whether they were planned or just coincided with the current equities boom is up for debate. The key motivations to sell now are:
- Valuations coming under pressure from rising inflation
- Investors becoming wary of potential tighter post-Covid measures from the Fed
- Joe Biden’s proposed capital gains tax hike
Who is selling?
The following names were mentioned by Bloomberg has being key stock sellers:
- Jeff Bezos – Sold $6.7bn worth of Amazon shares in 2021
- Mark Zuckerberg – Sold $1.67bn worth of Facebook shares since November 2021 through the Chan Zuckerberg Foundation charity
- Larry Ellison – Sold $552.3m Oracle shares
- Charles Schwab – Sold $192 worth of shares in his eponymous brokerage
- Sergei Brin – $163m worth of Alphabet stock
- Eric Yuan – Sold $185m of Zoom shares
One thing to note is that all of the above are involved in big tech players. Typically, such entrepreneurs’ portfolios are heavily weighted to tech stocks. It’s where they generate their wealth after all. However, divesting such levels of stocks makes sense. It’s rarely a great idea to bet solely on one horse, even if said horse has made you a multi-billionaire.
These stock sales will have further ripples away from equities markets. Hundreds of millions could be about to be poured into areas like art, real estate, and philanthropy.
Get more insider insights with our Insider Trades tool
The Insider Trades tool highlights the increase and decrease in shareholdings for company insiders, so you can make a more informed decision on your position.
This tool can help you get a better understanding of a stock’s performance and understand why thousands of insiders are buying or selling their own company stock, helping you make better trades.
Week Ahead: BoE rate decision, earnings roll on & nonfarm payrolls
A busy week is ahead of us as the Bank of England meets for the first time this year amid speculation around negative rates and criticism of its QE programme. Earnings season continues, led by Amazon and Alphabet, and January nonfarm payrolls are released, following December’s decline.
BoE statement: negative rates on their way?
The Bank of England meets this week for its first interest rate decision of 2021, with the question of negative rates floating in the air.
While interest rates are at a record low 0.1%, the dip into the negative is being explored by an ongoing review. In October 2020, the BoE began canvassing banks to assess if they were ready for negative rates, although around that time Governor Andrew Bailey explicitly said no rate change would be coming in the immediate future.
External member Silvana Tenreyro made an impassioned defence of negative rates earlier in January 2021, although internal members are yet to be moved. They may be waiting for the results of their bank-consulting review before making any form of announcement.
Elsewhere, the Bank’s QE programme has been called into question by its own internal independent watchdog The Independent Evaluation Office. According to the IEO’s findings, the BoE “does not understand its own quantitative easing programme”.
According to a report by the Financial Times, quoting the IOE, says the BoE’s QE programme has worked operationally but caused controversy because the central bank’s “important knowledge gaps” hinder its ability to build “public understanding and trust in QE”.
The Bank of England turned to QE last year as a way of giving monetary support to the Covid-hit economy. It has been printing money and buying government bonds in financial markets, in hopes it can keep inflation around its benchmark 2.0% rate.
No changes are expected to the benchmark lending rate nor to the size of scope of QE this week, however there will be close inspection of language and tone around negative rates in light of the deterioration in some economic indicators since the last meeting. The Bank will also likely flag concerns about the path of recovery and the requirement to maintain flexibility. Hints about possible moves into negative rates would likely weight on sterling.
Earnings Season rolls on with Amazon & Alphabet reporting
It’s still earnings season on Wall Street and the reports from the large caps keep rolling in. Some are more likely to prosper from the Covid situation than others and Amazon is well placed to report a bumper quarterly earnings report.
For starters, the holiday shopping season, and a delayed Prime Day fall squarely into the latest quarter. Reports indicate that Amazon may have been able to scoop up as much as 42 cents on the dollar for each sale.
With Prime Day sales alone growing 45.2% year-on-year, with a record-setting $10.4bn, it appears Amazon has been able to capitalise on lockdown as shoppers can really only browse, click and buy instead of hitting the high street. Amazon also reported Cyber Monday was its best ever shopping day, with sales on that 24-hour period clocking in at $9.2bn.
Amazon stocks have outperformed the S&P 500 at +74.5% vs. +17.9% over the past year, thanks in part due to its better Prime delivery service, the lockdown benefiting online retailers, and growth in its Amazon Web Services decision.
Big Tech has performed well under lockdown too, and analysts forecast that Google-parent Alphabet will post a bumper Q4 earnings report next week too.
Ad revenues are expected to be the key driver here, with search ad revenues up 9% in Q3, following an 8% drop in Q2 revenues as businesses adjusted to the Covid reality. For comparison, we can look at Microsoft’s latest search ad revenues contributed $2.18bn in the last quarter, up 1%.
Given Google’s stronghold on that market sector, it’s expected these will be much greater, and could potentially post some substantial gains – especially as YouTube engagement rose higher in the last quarter. Could the trend continue?
See the bottom of this article for a look at which large caps are reporting earnings this week.
Nonfarm payrolls release following December decline
Latest nonfarm payroll data is set to be released next week as an indicator of US economic health.
The job market took a hit in December, when the last release revealed 140,000 jobs had left the economy that month. Weekly unemployment claims hit 965,000 at the start of January, suggesting that the US economy was starting to creak again.
The latest Fed meeting was what we thought it would be, i.e. no major changes to current economic policy. But President Biden is now in the White House and has promised a $1.9 stimulus package that could help get things working again. Part of Biden’s plan is small business protection – something 82% of Americans want from any further stimulus deals according to a Morning Consult poll.
If the stimulus package is passed, then $15bn in grants will be offered to small business employers alongside $35bn in low-interest loans. The Paycheck Protection Programme will likely continue too. Stimulus cheques are said to be coming too, putting $1,400 into consumers’ pockets, which is hoped they will then spend, and reinvigorate business nationwide.
Time is of the essence here though, as 57% of US small business owners think they’ll only be able to last until June. After that, all bets are off as small businesses are already burning through cash at a rate of knots. If the package can get passed, great. If not, further job losses could accrue as businesses fold.
Major Economic Data
|Mon 1 Feb||9.00am||EUR||Final Manufacturing PMI|
|9.30am||GBP||Final Manufacturing PMI|
|3.00pm||USD||ISM Manufacturing PMI|
|Tue 2 Feb||3.30am||AUS||RBA Bank Statement|
|9.45pm||NZD||Employment Change q/q|
|Wed 3 Feb||9.00am||EUR||Final Services PMI|
|9.30am||EUR||Final Services PMI|
|1.15pm||USD||ADP Non-Farm Employment Change|
|3.00pm||USD||ISM Services PMI|
|3.30pm||USD||US Crude Oil Inventories|
|Thu 4 Feb||12.00pm||GBP||BoE Monetary Policy Statement|
|12.00pm||GBP||MPC Official Bank Rate Votes|
|12.00pm||GBP||Monetary Policy Statement|
|12.00pm||GBP||Official Bank Rate|
|3.30pm||USD||US Natural Gas Inventories|
|Fri 5 Feb||12.30am||AUD||RBA Monetary Policy Statement|
|1.30pm||USD||Average Hourly Earnings m/m|
|1.30pm||USD||Non-Farm Employment Change|
Key Earnings Data
|Mon 1 Feb||Nintendo||Q3 2020 Earnings|
|Ryanair||Q3 2021 Earnings|
|Tue 2 Feb||Amazon||Q4 2020 Earnings|
|Alphabet||Q4 2020 Earnings|
|Pfizer||Q4 2020 Earnings|
|ExxonMobil||Q4 2020 Earnings|
|UPS||Q4 2020 Earnings|
|BP||Q4 2020 Earnings|
|Chubb||Q4 2020 Earnings|
|Ferrari||Q4 2020 Earnings|
|Panasonic||Q3 2021 Earnings|
|Mitsubishi Electric||Q3 2020 Earnings|
|Electronic Arts||Q3 2021 Earnings|
|Wed 3 Feb||PayPal||Q4 2020 Earnings|
|Siemens AG||Q1 2021 Earnings|
|Sony Corp.||Q3 2020 Earnings|
|GlaxoSmithKline||Q4 2020 Earnings|
|Spotify||Q4 2020 Earnings|
|Volvo||Q4 2020 Earnings|
|MetLife||Q4 2020 Earnings|
|Mitsubishi||Q3 2021 Earnings|
|Hitachi||Q3 2020 Earnings|
|eBay||Q4 2020 Earnings|
|Thu 4 Feb||Shell||Q4 2020 Earnings|
|Phillip Morris||Q4 2020 Earnings|
|Gilead||Q4 2020 Earnings|
|Activision Blizzard||Q4 2020 Earnings|
|Unilever||Q4 2020 Earnings|
|ABB||Q4 2020 Earnings|
|Q4 2020 Earnings|
|Ford||Q4 2020 Earnings|
|YUM! Brands||Q4 2020 Earnings|
|Motorola||Q4 2020 Earnings|
|Fri 5 Feb||Linde||Q4 2020 Earnings|
|Estee Lauder||Q3 2021 Earnings|
|BNP Paribas||Q4 2020 Earnings|
|Vinci||Q4 2020 Earnings|
|Aon||Q4 2020 Earnings|
|Carlsberg||Q4 2020 Earnings|
|Assa Abloy||Q4 2020 Earnings|
Week Ahead: Big tech earnings to drive pre-election volatility
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 YTD. Microsoft reports on Tuesday and there are dozens of large cap stocks reporting over the next few days.
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.
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.
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.
|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
|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|
Barclays shares pop, SPX faces big hurdle with Fed, GDP ahead
Barclays CEO Jes Staley reckons that after Covid-19 the idea of sticking thousands of people in a building may be a thing of the past. I heartily agree. Working from home is clearly working rather well. Also, banks are no doubt looking at this and thinking they can cut costs by closing offices, call centres and branches. Nevertheless, it highlights how bosses and government have a very hard task in exiting lockdown. Moreover, what about the Pret or the pub that depends on lunch trade from the City workers filling up these offices every day? The impact on the economy will be permanent.
Shares in Barclays popped over 5% despite the lender taking a £2.1bn credit impairment charge, five times the level of a year before. Like its US peers, trading revenues soared by 77% but this offset may be a one-off for banks as volatility returns to more normal levels. Shares were due a rally – they’ve been beaten down so much and haven’t really participated in the upturn. Investors may need to wait for dividends but UK banks could be in much better shape their share prices indicate.
The S&P 500 failed a major test yesterday as bulls stumbled amidst a blitz of earnings releases and doubts about oil prices. The broad index rallied on the open to trade above 2900 but closed lower and crucially below the key 2885 resistance at 2,863, forming a dark cloud cover bearish signal.
Futures though are higher again today, but we will need to see these levels broken decisively on a close before we consider a push to the 61.8% retracement of the drawdown at 2934. For that we will look to earnings and the US advanced GDP print – seen at -4% – but more importantly the messaging from the Fed today will be crucial for sentiment in equity markets.
Asian markets were broadly firmer overnight with traders expecting the Fed to make clear it will not remove any accommodation until the threat from Covid-19 has passed.
European indices opened strongly, building a very solid session on Tuesday that saw the FTSE 100 rally almost 2% and close above the Apr 14th swing high, but then we saw weakness creep in after half an hour’s trading outside of the UK market, which looks pretty solid as it taps on 6,000.
Italian bonds have softened after Fitch cut the country’s debt to one notch above junk. This unscheduled move followed S&P affirming Italy’s status but with a negative outlook. The yield on Italian 10-year BTPs spiked to 1.83%, the highest since Friday, and it just causes a little added worry for the ECB ahead of its meeting tomorrow. BTP-Bund spreads widened.
Alphabet dealt with a sharp decline in ad revenue growth in the first quarter as a result of the Covid-19 outbreak and lockdown measures that are stifling consumer spending, but management pointed to a rebound in April and outline spending cuts that sent shares up 8% after hours.
The fact that Alphabet sees ‘some signs users are returning to normal behaviour’ does not in itself mean the global economy is anywhere near to normal. Alphabet is one of the best placed companies to grow out of the crisis and should benefit from consumers increasing screen time in lockdown and no doubt growing digital ad spend as economies recover in the latter part of 2020 and through 2021. Structural shifts boosting digital ad growth that Covid-19 is accelerating will also be factor. Facebook and Microsoft report today.
Elsewhere, front month WTI bounced off the lows after testing $10 to move up through $14 by the European session open. API data showed inventories rising almost 10m barrels in the week to Apr 24th, but this was lower than estimates. As ever we are looking at the EIA figures with more interest. A slowing in inventory builds from the +15M we’ve seen in the last three weeks can be expected as we reach tank tops at Cushing. Expect volatility in the front month WTI to be very high until expiry.
S&P 500 looks to clear key resistance again, still worried about rolling over
FTSE 100 looks to breakout of recent range, taking out the horizontal resistance and looking to breach 6,000 but first it’s got the 50-SMA to deal with.
Week Ahead: Bumper week with FOMC, ECB, FAANGS & GDP
Welcome to your guide to the week ahead in the markets. Remember you can now find all the key events affecting the markets in our new Events Calendar in the platform.
European Central Bank rate decision
Last week ECB president Christine Lagarde allegedly told EU leaders during a private video summit that the bloc could be facing a drop in GDP of up to 15%, and that their efforts to contain the outbreak have been both too little and too late. Monetary policy can only go so far, but the ECB does still have room to manoeuvre. Expansion of QE will likely be the first port of call if policymakers decide more needs to be done, but minutes from the March 18th meeting show that cutting rates was floated, too.
FOMC decision – has the Fed got any ammunition left?
What’s left for the Federal Reserve to do? Rates have been slashed to zero, and that’s where futures markets see them staying well into 2021 at least. And it’s hard to announce more QE when you’ve already committed to unlimited asset purchases. The key question is what the FOMC has left in reserve in case its vast stimulus measures aren’t enough. Will policymakers set negative rates? Will they buy corporate stocks? Will they explicitly target yields on government bonds? Markets will be looking for reassurance that policymakers still have plenty of ammunition left.
Bumper week of earnings with Apple, Alphabet, Facebook reporting
Netflix has already reported earnings, but this week sees the rest of the FAANG group offering up their quarterly figures. Tesla and Microsoft are also amongst the heavy hitters providing updates this week.
US, Eurozone GDP
We’ve seen piecemeal evidence of the impact COVID-19 has had on the US and Eurozone economies thanks to industrial data, PMIs, and business sentiment figures. But now it’s time to get the full picture, as the US and Eurozone will both publish estimates of Q1 growth. It was initially believed that moderate growth in January and February would have softened the blow from social distancing and widespread lockdowns that went into effect in March. Now the consensus is that the recession expected in Q2 arrived much earlier. Estimates vary wildly, but no matter how dire the results, the figures for Q2 are likely to be way worse.
Heads-Up on Earnings
|After-Market||28-Apr||Alphabet – Q1 2020|
|After-Market||29-Apr||Microsoft – Q3 2020|
|After-Market||29-Apr||Facebook – Q1 2020|
|After-Market||29-Apr||Tesla – Q1 2020|
|After-Market||30-Apr||Apple – Q2 2020|
|After-Market||30-Apr||Amazon – Q1 2020|
|03.00 UTC||28-Apr||BOJ Rate Decision & Outlook Report|
|07.00 UTC||28-Apr||Spanish Unemployment Rate Q1|
|14.00 UTC||28-Apr||US CB Consumer Confidence|
|01.30 UTC||29-Apr||Australia Quarterly CPI|
|12.00 UTC||29-Apr||Germany Preliminary CPI|
|12.30 UTC||29-Apr||US Advance GDP QoQ|
|14.30 UTC||29-Apr||US EIA Crude Oil Inventories|
|18.00 UTC||29-Apr||FOMC Rate Decision|
|09.00 UTC||30-Apr||Eurozone Flash GDP|
|11.45 UTC||30-Apr||ECB Rate Decision and Statement|
|12.30 UTC||30-Apr||US Initial Jobless Claims|
|14.30 UTC||30-Apr||US EIA Natural Gas Storage|
Tech stocks under pressure
Markets remain on the hook to the trade war rumblings, but a new war has opened up that threatens equity investors – a war on tech. What the Fed threatens to give, the DoJ takes away.
Yesterday we saw a soft start in the US before the ISM print missed and investors raised bets the Fed will cut rates this year. But the Fed put was not enough to fight the tide off tech woes.
Fangs are under severe pressure amid fears they are in the crosshairs of trust busters. The DoJ and FTC are marking targets and loading up. Whilst it’s far too early to say if any would, or could, be ripe to be broken up, there’s a real threat this will depress multiples and mean we need to reset expectations. Given the Fangs have been at the front of the market expansion in recent years, this will act as a drag on sentiment as well.
A couple of very big moves yesterday in Alphabet and Facebook.
Alphabet –6% – support now seen around $968, before $895 comes into play.
Facebook –7.5% – key support seen at $159, below that we look to the $145 level.
Calls have been growing louder and louder for the authorities to at least look at antitrust issues for the tech giants. Political pressure is building – lawmakers sniff votes in tackling big tech. The shift really happened last year with Facebook’s scandals, which broken the illusion of Silicon Valley being in it for the little guy. They’re just big corporations out to make money like any other – the politicians can smell blood. As I noted a year or two ago, I always thought Trump had the hallmarks of a Teddy Roosevelt trust-buster.
So now we have the Nasdaq in correction territory – down 1.6% yesterday to take it more than 10% off its all-time highs. The Dow was flat, while the S&P 500 notched a decline of 0.3%. The FTSE 100 ended the day in the green, up 0.3% at 7184 with the key 7150 level holding.
Asian shares followed Wall Street’s lead overnight, and futures show European shares are under the cosh again today.
US Treasury yields continue their slide with the 10yr slipping to 2.085% and threatening to find the 2.05% level now. EURUSD has broken out of technical resistance due to the slide in yields as markets bet on a Fed rate cut. EURUSD faces resistance at 1.126/7 but having broken out of the long-term descending wedge we could now look for more gains. Has the dollar rally ended? Well it all depends on the Fed.
Today’s Jay Powell speech is now key to market sentiment after dovish comments from James Bullard yesterday.
St. Louis Fed boss James Bullard – a voting member of the FOMC – says a rate cut may be warranted soon. He talked about a sharper than expected slowdown. He also discussed a cut as insurance – some sense the Fed is seeking to get ahead of the curve – too late! Over to Powell later today.
Bullard has always been one of the most dovish members of the FOMC – the market may have massively miscalculated the US central bank’s view of the economy, inflation and risks to its forecasts. I rather think the Fed will be a lot less ready to ease than the market thinks, and this suggests a significant decoupling between the Fed and market expectations.
Ahead of this we have the Eurozone CPI print. The last
reading showed inflation rose to a 6-month high in April at 1.7%, whilst core
price growth rose to 1.3%. However, this uptick seems to be down to
one-offs and the core read is expected to revert to trend around 1% in May,
with the headline print at 1.4%.
Woodford shut – worse to come?
Neil Woodford has suspended trading in the Woodford Equity Income. Woodford has clearly made a series of poor investment decisions. Out of love UK stocks with entirely domestic may have been ultra-cheap, but they’re still unloved and still cheap. Provident has been a disaster. Kier, whose shares tumbled 40% yesterday, also disaster. It’s been a tough few years for Woodford and things look like they will get worse still.
No surprise the RBA cut rates, it had been fully priced in. The question now is how many more? The statement didn’t tell us anything new. No indication there will be more this year. Worth noting the RBA’s own forecasts are predicated on 50bps of cuts so we’re only half way there. Watch the data. AUDUSD has gained a few pips post the statement, with little detail on future cuts likely to give the bulls some hope. Resistance at 0.6990, the 38.2% Fib level, tested and rejected.
UK retail sales fell off a cliff in May – down 2.7%. This is the worst ever decline in retail sales and will hit the sector today.
Morning note: SPX record intra-day high, China data soft, Alphabet miss
The S&P 500 notched up a fresh record high as spending and inflation data showed lots of the former and not much of the latter. Stand down on the stagflation klaxon, prints like yesterday’s are good for risk and keep the Fed on the leash. Meanwhile corporates are beating on earnings and we now may be set to avoid the earnings recession which was expected.
PCE inflation, the Fed’s preferred gauge, came in at 1.6%. Spending was much stronger with consumer spending +0.9%, the fastest growth since 2009. FOMC meeting decision tomorrow will likely not offer too many surprises. Without inflation really coming through there is not the pressure on the Fed to raise rates. Markets though are still – in my view – underestimating likelihood of a hike this year. Policymakers will have to acknowledge the risks to financial stability and the impressive Q1 GDP print.
Data from China overnight is bad for risk. China manufacturing activity was weaker than expected overnight, with the April purchasing managers indices disappointing. The official PMI came in at 50.1, whilst the Caixin number was 50.2. The gauges are barely in expansion territory and having jumped in March, the figures are a bit of a disappointment. Export orders were weak and it all rather suggests there could be a bit more softness to come.
Eyes now on flash data from the Eurozone for any clues about a rebound in the global economy. Don’t hold your breath.
Alphabet earnings miss forecasts
Alphabet earnings were a big disappointment as revenue growth missed expectations. More competition for sure is a factor as the likes of Amazon and Facebook March forwards. Google will have to get used to competition more – last quarter’s report was a bit of heads up on that front and this quarter’s numbers confirm it.
A tough comparison to last year was also a factor as changes to YouTube a year ago delivering a boost then that was not repeated this year. FX headwinds were also a big factor in the slower revenue growth and should not be ignored. Sales of the Google Pixel have also proved disappointing.
Overall, revenues rose 17% yoy, to $36.3bn, the slowest pace in three years and well short of the 20% expected. Income beat, though, with EPS at $11.90 versus the $10.53 expected, excluding a EU fine of €1.7bn, which brought earnings down to $9.50 a share. Shares in Alphabet were down 7% in after-market trading having hit a record high earlier. The market may be punishing Alphabet just a little harshly when you consider the impact of FX headwinds in these numbers.