CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% 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: OPEC meets, Caixin PMI to reveal coronavirus impact
OPEC to the rescue, Democrats approach Super Tuesday, US Nonfarm Payrolls and more on Covid-19
Welcome to your guide to the week ahead in the markets. Watch the latest week ahead video in XRay on the platform now.
OPEC to the rescue?
Oil has been hammered as the coronavirus forced factories across China to cease production and grounded flights across the globe. China is coming back online now, but crude inventories have been building amid the demand drop-off and we could be facing shutdowns in other parts of the world if the virus continues to spread.
Crude and Brent fell to their lowest levels in over 12 months last week, but hope remains that OPEC will ride to the rescue when it meets on Thursday and Friday. The current pact to cut production by 1.7 million barrels per day expires at the end of this month. There is talk of extending the deal and cutting production by another 600,000 barrels per day, but it is uncertain whether cartel ally Russia will agree to such a move.
Chinese manufacturing came back online towards the end of February, with travel data showing a larger-than-expected number of workers were able to leave their hometowns and return to work after the extended Lunar New Year holiday. The number of people travelling at the end of the month was still well below usual post-holiday levels, however. Even businesses that have reopened are facing labour shortages, supply chain disruptions, and weak demand. This week’s Caixin Manufacturing PMI will be a key measure as economists slash growth expectations and markets look for clues over how severe the economic impact of a large-scale outbreak in the US or Europe could be.
Democrats approach Super Tuesday
This week will give markets a clearer indication of which Democratic candidate is likely to challenge President Trump in this year’s election. 14 states are due to hold primaries on ‘Super Tuesday’. Only 100 delegates were assigned during three primaries last week, with Bernie Sanders securing almost half of those. A strong performance on Super Tuesday would cement his position as the frontrunner – the number of delegates up for grabs on Tuesday alone is around a third of the nearly 4,000 needed to secure the nomination. Bernie is the worst outcome as far as the markets are concerned due to his socialist policies, so any shift in voting towards more moderate candidates like Joe Biden could see markets breath a small sigh of relief.
US nonfarm payrolls
Usually the highlight of the economic calendar, this month’s nonfarm payrolls may not be so impactful. The monetary policy outlook is currently ruled by coronavirus headlines – markets are betting on a rate cut in April, if not this month, and a solid set of jobs numbers would be unlikely to materially shift those expectations. Markets are thinking about the potential economic impact of a large-scale Covid-19 outbreak in the US, so backwards-looking data may not settle many nerves
Heads-Up On Earnings
|2nd March – 01.45 GMT||China Caixin Manufacturing PMI|
|2nd March – 08.15-09.30 GMT||Eurozone / UK Finalised Manufacturing PMIs|
|2nd March – 15.00 GMT||US ISM Manufacturing Index|
|3rd March – 03.30 GMT||RBA Official Cash Rate Decision & Statement|
|3rd March||Beiersdorf||Q4 2019|
|3rd March – 10.00 GMT||Eurozone Flash CPI Estimate|
|3rd March – After Market||Hewlett Packard Enterprise||Q1 20202|
|4th March – 00.30 GMT||Australia Quarterly GDP|
|4th March – 07.00 GMT||DS Smith||Q3 Trading Update|
|4th March – 08.15-09.30 GMT||Eurozone / UK finalised Services PMIs|
|4th March||Legal & General||Q4 2019|
|4th March – Pre-Marcket||Dollar Tree||Q4 2019|
|4th March – Pre-Market||Campbell Soup||Q2 2020|
|4th March – 15.00 GMT||Bank of Canada Interest Rate Decision and Statement|
|4th March – 15.00 GMT||US ISM Non-Manufacturing Index|
|4th March – 15.30 GMT||US EIA Crude Oil Inventories Report|
|4th March – After Market||Zoom Video Communications||Q4 2020|
|5th March – 00.30 GMT||Australia Trade Balance|
|5th March – All Day||OPEC Meeting, Vienna|
|5th March – Pre-Market||Kroger||Q4 2019|
|5th March||Aviva||Q4 2019|
|5th March – 15.00 GMT||US EIA Natural Gas Storage Report|
|5th March – After Market||Costco Wholesale Corp||Q2 2020|
|6th March – 00.30 GMT||Australia Retail Sales|
|6th March – All Day||OPEC+ Meeting, Vienna|
|6th March – 13.00 GMT||US Nonfarm Payrolls Report|
Watch The Week Ahead on XRay
|Highlights on XRay this week:|
|Daily – 08:15 GMT|
European Morning Call Free Register
March 2nd – 15.00 GMT
The Trendsignal Podcast Free Register
March 3rd – 10.00 GMT
FXTrademark Course: Trading Strategies Free Register
March 4th – 10:00 GMT
FXTrademark Course: 10 Laws of Trading Free Register
March 6th – 13:00 GMT
Live Trade Setups with Mark Leigh Free Register
US and Eurozone spending and confidence, Best Buy earnings
Welcome to your guide to the week ahead in the markets.
Has COVID-19 peaked?
Markets will of course remain susceptible to news surrounding the COVID-19 outbreak over the coming week. The number of new cases recorded daily had slowed towards the end of last week, but an outbreak in South Korea reignited fears of a global spread. Over 75,000 cases and more than 2,100 fatalities had been reported by the end of the week. An acceleration of cases outside of China could prompt further flights to safety, but otherwise the market seems relatively confident that the outbreak is contained and that stimulus from Beijing and the PBoC will soften the economic hit.
US GDP, durable goods, personal spending
Members of the Federal Reserve were feeling confident about the state of the US economy during their last policy meeting, according to last week’s minutes. The FOMC thinks the outlook has gotten “stronger”, and the coming week offers plenty of data to either challenge or support that view. CB confidence is expected to have ticked higher in January, durable goods orders to have fallen –2%, and core PCE to remain stable on the month. While personal income growth is predicted to have risen, spending is likely to have weakened. A second estimate of Q4 GDP is likely to hold steady at 2.1%.
Eurozone, Germany confidence, flash inflation
The euro could be facing more headwinds this week after sliding to multi-week lows against the pound and multi-year lows against the dollar last week. Sentiment data from Germany and the bloc is expected to soften, mirroring market concerns over the health of the bloc’s economy following some poor industrial data. Flash inflation figures for the Eurozone and Germany are unlikely to make inspiring reading; even if price growth in Germany has strengthened towards the ECB target again, the wider Eurozone reading remains far behind.
Earnings: Best Buy, Bayer
Best Buy reports earnings before the open on February 27th. The stock has put in a strong performance over the last six months, rallying around 40% compared to 15% gains for the retail-wholesale sector and 18% for the S&P 500 index during the same period. Best Buy has delivered 11 earnings beats in the past 12 quarters and beat expectations by over 9% in each of the past two quarters.
Bayer also reports earnings on the 27th. The stock is up 45% from the June 2019 low of 51.90, and was last trading around 75.00.
FTSE in focus on deluge of FY results
Earnings reports will be a key driver of UK stocks over the coming days. A deluge of full-year results for 2019 from blue-chips including Standard Chartered, British American Tobacco, Rio Tinto, Persimmon, Taylor Wimpey, RSA Insurance and Meggitt provide clear risks for the FTSE 100 index over the coming sessions. A slew of reports from FTSE 250 constituents throughout the week could also affect the general sentiment around UK plc.
Heads-Up on Earnings
The following companies are set to publish their quarterly earnings reports this week:
|24th Feb – 09.00 GMT||German IFO Business Climate Index|
|24th Feb||Associated British Foods Pre-Close Trading Statement|
|25th Feb – 12.00 GMT||Manchester United||Q2 2020|
|25th Feb – Pre-Market||Home Depot||Q4 2019|
|26th Feb – 06.00 GMT||Rio Tinto||Q4 2019|
|26th Feb – 08.00 GMT||Danone||Q4 2019|
|26th Feb||Taylor Wimpey||FY 2019|
|26th Feb – Pre-Market||Lowe’s Companies||Q4 2019|
|26th Feb – 15.30 GMT||US EIA Crude Oil Inventories|
|27th Feb – 00.30 GMT||Australia Private Capital Expenditure|
|27th Feb – 04.15 GMT||Standard Chartered||Q4 2019|
|27th Feb – 06.30 GMT||Bayer||Q4 2019|
|27th Feb||Persimmon||Q4 2019|
|27th Feb||RSA Insurance||FY 2019|
|27th Feb – 10.00 GMT||Eurozone Sentiment Survey Results (Consmer, Business, etc)|
|27th Feb – After-Market||Autodesk||Q4 2020|
|27th Feb – 13.30 GMT||US Q4 GDP 2nd Estimate, Durable Goods Orders|
|27th Feb – 15.30 GMT||US EIA Natural Gas Storage|
|27th Feb – Pre-Market||Best Buy||Q4 2020|
|28th Feb – 10.00 GMT||Eurozone Preliminary Inflation|
|28th Feb – 12.30 GMT||US PCE Index, Personal Spending, Personal Income|
|28th Feb – 13.00 GMT||Germany Preliminary Inflation|
Week Ahead: FOMC’s symmetric minutes, German sentiment, UK inflation
The last meeting of the Federal Reserve Committee saw policymakers reaffirming their commitment to letting inflation run hot in order to make up for years of lacklustre price growth. Jerome Powell told reporters after the meeting that “we wanted to underscore our commitment to 2% not being a ceiling, to inflation running symmetrically around 2% and we’re not satisfied with inflation running below 2%”. Expect more underscoring in the minutes, and perhaps more softening of the economic assessment – the post-meeting statement revised its view of consumer spending to “moderate” from “strong” in December.
Germany ZEW sentiment
Industrial production data last week raised further questions over the outlook for the Eurozone. Production fell 4.1% during 2019, and now there’s the added threat of disrupted supply chains thanks to the coronavirus outbreak. Last month’s ZEW sentiment index surged to 26.7 from 10.7 in December, but recent developments suggest that optimism may have been premature.
A soft inflation reading in December had seen markets divided over whether or not the Bank of England was finally about to cut interest rates, having been on hold so long due to Brexit uncertainty. In the end Governor Mark Carney left things unchanged before passing the baton to Andrew Bailey. Another round of soft inflation data this week might not be enough on its own to persuade the Monetary Policy Committee that a rate cut is necessary, but if Friday’s preliminary Markit PMIs also show weakness markets are likely to raise bets on easing soon.
Eyes on OPEC
Oil markets had been hoping that OPEC would ride to the rescue this month, bringing forward its March meeting as the coronavirus outbreak hammers global oil demand. It now seems that this is unlikely, but any rumours to the contrary will still have a strong impact on oil. A change in diagnostic methods last week saw the number of coronavirus cases and deaths race higher, but equities largely shrugged this off. It’s commodities that are bearing the brunt of the economic impact, so key risks remain for oil on virus and OPEC-related headlines.
Heads-Up On Earnings
The following companies are set to publish their quarterly earnings reports this week:
|17th Feb – 21.30 GMT||BHP Billiton||Q2 2020|
|18th Feb – 00.30 GMT||Reserve Bank of Australia Meeting Minutes|
|18th Feb – 04.00 GMT||HSBC Holdings||Q4 2019|
|18th Feb – 09.30 GMT||UK Unemployment Rate, Average Earnings|
|18th Feb – 10.00 GMT||Eurozone/Germany ZEW Survey Results|
|18th Feb – Pre-Market||Walmart||Q4 2020|
|18th Feb – Pre-Market||Medtronic||Q3 2020|
|18th Feb – Pre-Market||Glencore||Q4 2019|
|19th Feb – 09.30 GMT||UK Consumer Price Index|
|19th Feb – 13.30 GMT||Canada Consumer Price Index|
|19th Feb – 19.00 GMT||FOMC Meeting Minutes|
|20th Feb – 00.30 GMT||Australia Employment Change/Unemployment Rate|
|20th Feb – 01.30 GMT||People’s Bank of China Interest Rate Decision|
|20th Feb – 07.00 GMT||Germany GfK Consumer Confidence|
|20th Feb – 09.30 GMT||UK Retail Sales|
|20th Feb – 12.30 GMT||ECB Monetary Policy Meeting Accounts|
|20th Feb – 15.30 GMT||US EIA Natural Gas Storage|
|20th Feb – 16.00 GMT||US EIA Crude Oil Inventories|
|20th Feb||BAE Systems||Q4 2019|
|21st Feb – 06.00 GMT||Allianz||Q4 2019|
|21st Feb – 09.30 GMT||UK Market Flash Composite (Inc Flash Manufacturing/Services PMIs)|
|21st Feb – 10.00 GMT||Eurozone Consumer Price Index|
|21st Feb – Pre-Market||Deere & Co||Q1 20202|
Watch the Week Ahead on XRay
Highlights on XRay this week:
|Daily||08.15 GMT||European Morning Call||Free||Register|
|18th Feb||14.15 GMT||Live Trading Room with Trendsignal||Free||Register|
|18th Feb||16.30-17.10 GMT||Asset in Focus: Oil Gold and Silver||Free||Register|
|19th Feb||12.00 GMT||Midweek Lunch Wrap||Free||Register|
|21st Feb||13.00 GMT||Live Trade Setups with Mark Leigh||Free||Register|
RBNZ on hold, US CPI on tap, UK & EU update on growth
With the UK starting 2020 by leaving the EU and striking out on its own, markets would like to see that it ended 2019 on a strong economic footing when preliminary Q4 data is released. The data for most Eurozone members will be the second reading; the preliminary estimates showed expansion of just 0.1% as strong growth in Spain helped to offset contractions in France and Italy. Germany’s Q4 reading will be the flash estimate – analysts expect the Eurozone powerhouse to post a contraction of -0.1%.
RBNZ – Easing cycle is over
A round of strong labour market data last week has markets pricing in stronger odds that the RBNZ is done with its easing cycle. Unemployment dropped to 4% in Q4 and the underutilisation rate, which measures the labour market’s untapped capacity, fell to an 11-year low of 10% in December.
While the Chinese coronavirus outbreak is the latest economic headwind for markets and central banks to contend with, the strength of the domestic data should see the RBNZ confident enough to stand pat and see how the situation develops.
Last month’s CPI reading showed the fastest pace of annual inflation in eight years, but a closer look at the numbers revealed some big weaknesses. Month-on-month, price growth slowed to 0.2% from 0.3% in November, core CPI slowed to 0.1% from 0.2%. Average earnings grew just 0.7% in 2019. More soft readings like this will support the market view that Fed policy will remain on hold until well into H2.
Earnings – Kraft Heinz and NVIDIA
Top reports this week will be Kraft Heinz before the market opens on February 13th and NVIDIA after the closing bell the same day. KHC has had a bad start to 2020, declining around 9% even as the S&P 500 and Nasdaq hit fresh record highs. The company is facing weakening demand and a lack of free cash with which to innovate.
Coronavirus fears caused a small stumble in NVIDIA’s continuing rally, with the stock quickly recovering. China accounts for around a quarter of the chipmaker’s revenue, so management may warn that the virus could dent demand in this key market. EPS of $1.66 is expected on revenue of $2.96 billion – both hefty increases on the same period a year ago.
(All times GMT)
01.30 GMT 10-Feb China Consumer Price Index
06.30 GMT 11-Feb Daimler – Q4 2019
09.30 GMT 11-Feb UK Preliminary GDP (QoQ) & Manufacturing Production
Pre-Market 11-Feb Hasbro – Q4 2019
After-Market 11-Feb Lyft – Q4 2019
01.00 GMT 12-Feb RBNZ OCR Decision & Monetary Policy Statement
07.00 GMT 12-Feb Softbank – Q3 2019
15.30 GMT 12-Feb US EIA Crude Oil Inventories
After-Market 12-Feb Cisco – Q2 2020
07.00 GMT 13-Feb Barclays – Q4 2019
Pre-Market 13-Feb The Kraft Heinz Company – Q4 2019
13.30 GMT 13-Feb US Consumer Price Index
15.30 GMT 13-Feb US EIA Natural Gas Storage Data
After-Market 13-Feb NVIDIA – Q4 2020
13-Feb Airbus – Q4 2019
07.00 GMT 14-Feb Germany Preliminary GDP (QoQ)
10.00 GMT 14-Feb Eurozone Flash GDP (QoQ)
13.30 GMT 14-Feb US Retail Sales
15.00 GMT 14-Feb US Preliminary UoM Consumer Sentiment Index
Brexit day, Bank of England eyes cut, FAANG earnings on tap
At long last, after more than three and a half years and much political and market turmoil, Britain will finally leave the European Union on Friday, January 31st at 11:00 GMT. Bongs or not, there will be celebrations and commiserations in equal measure. For the pound, the focus now is on the trade deals with the EU and the US – at Davos last week it was made clear this is not going to be easy.
Bank of England to cut?
Market pricing suggests a roughly 50/50 chance the Bank of England will cut rates by 25bps to 0.5% on Thursday. Whilst hard economic data prior to the election showed a softening in activity, surveys since the Tory win have improved.
Weak inflation – which rose just 1.3% against 1.5% in November – could swing it for the doves. CPI inflation rates are at their lowest since 2016. There is a sense the Bank doesn’t want to get behind the curve of market expectations and is seeking to get a jump on markets whilst still teeing up the cut. It would be following the Fed’s playbook in cutting early in order to prevent a downturn.
Tesla’s record run faces test
Shares in Tesla have enjoyed a remarkable run up to record highs, valuing the company at $100bn. But will the fourth quarter numbers deliver on the promise?
Influential analyst Dan Ives at Wedbush thinks the company will at least meet expectations. He says: “While Tesla shares remain on a historic rally heading into earnings, the bull party likely continues as the aggressive trajectory of Giga 3 production and demand out of Shanghai look very strong out of the gates and is the catalyst to move our price target from $370 to $550 ahead of earnings”.
Apple has also been making new record highs as it gears up to report its fiscal first quarter earnings. This is always Apple’s strongest as it chalks up the holiday season and new iPhone models. We’ve had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward.
New Fed makeup
No change expected from the Fed – don’t expect Powell to do anything other than signal he can’t imagine hiking again. A new makeup of the voting membership of the FOMC will provide some interest but is unlikely to change things materially – hawks Eric Rosengren and Esther George, along with doves Charles Evans and James Bullard, are set to depart. They will be replaced by arch dove Neel Kashkari, the more balanced Robert Kaplan and two more hawkish-leaning governors, Loretta Mester and Patrick Harker.
(All times GMT)
09.00 GMT 27-Jan Germany Ifo Business Climate
00.30 GMT 28-Jan Australia NAB Business Confidence
13.30 GMT 28-Jan US Durable Goods Orders
15.00 GMT 28-Jan US CB Consumer Confidence
After-Market 28-Jan Apple – Q1 2020
23.50 GMT 28-Jan Bank of Japan Summary of Opinions
00.30 GMT 29-Jan Australia Inflation Rate
07.00 GMT 29-Jan Germany GfK Consumer Confidence
15.30 GMT 29-Jan US EIA Crude Oil Stocks Change
19.00 GMT 29-Jan Federal Reserve Interest Rate Decision
After-Market 29-Jan Microsoft – Q2 2020
After-Market 29-Jan Facebook – Q4 2019
After-Market 29-Jan Tesla – Q4 2019
08.55 GMT 30-Jan Germany Unemployment Rate
10.00 GMT 30-Jan Eurozone Business & Consumer Confidence Surveys
12.00 GMT 30-Jan Bank of England Interest Rate Decision & Inflation Report
13.00 GMT 30-Jan Germany Preliminary Inflation Rate
13.30 GMT 30-Jan US GDP Growth Rate (Q4)
15.30 GMT 30-Jan US EIA Natural Gas Stocks
After-Market 30-Jan Amazon – Q4 2019
10.00 GMT 31-Jan Eurozone Preliminary Q4 GDP
13.30 GMT 31-Jan US Personal Income and Personal Spending
Equity Strategy: US earnings Q4 preview: Two major stocks to watch
- S&P 500 EPS seen just higher in Q4
- Valuations are stretched after 2019’s multiple expansion
- Tesla & Apple are top stocks to watch this earnings season
It’s easy to miss it, but US earnings season gets underway next week as the big banks begin reporting on Jan 14th. Weak corporate earnings growth could dent optimism around US stocks, but with the fourth quarter of 2019 out of the way, the market’s real focus is going to be whether we get the 10% earnings growth forecast in 2020.
Consensus estimates indicate a 1-2% decline in Q4 earnings, but the tendency to beat expectations suggests we will see earnings growth, albeit small.
Last year we saw multiple expansion massively outweigh earnings growth as the driver of the 28% rise in the S&P 500 last year. This poses problems as it means valuations are already rather stretched and reliant on strong EPS growth in 2020. The S&P 500 forward PE has jumped to 19 from a start of about 14 at the beginning of 2019, having averaged 16-17 over the last five years. Remember though that the starting point of the year was exceptionally weak given the Christmas 2018 drubbing. From the 2018 high through the recent all-time highs, the S&P 500 has only risen by a more modest 10%.
Two top stocks to watch this earnings season
Tesla – The stock has enjoyed a remarkable run up to record highs at $472 as the company turned a profit in Q3, reported a surge in deliveries and sent investors into a frenzy with its Shanghai plant and promise of electric growth in China. That and a huge amount of short covering.
Shorts have been crushed. A surprise profit in the third quarter has been the catalyst while we have seen remarkable progress in China and with the Model Y. Last week Tesla said it delivered 367,500 vehicles last year – double that recorded in 2018. It was above the forecast of at least 360,000 offered in Oct, but still at the low end of the expectations for 360,000-400,000 forecast at the start of the year. Investors seem to be shrugging off the fact that growth in 2019 was below the run rate seen in H2 2018 as it ramped production to beat a cut-off for US tax credits.
In Q3 Tesla made $143m against a loss of $1.1bn in the first half. And revenues came in at $6.3bn, down from $6.8bn a year ago and short of the $6.5bn expected. Deliveries had reached a record in the quarter but fell a little short of expectations.
We suggested in October when the Q3 numbers were released that this could be the turning point for this battered stock. After spending big to get the Model 3 out the door it’s managed to cut costs by 16% and has cash on hand of $5.3bn. The company expects the higher margin Model Y will vastly outsell all other models ‘combined’.
That cash pile will be needed though as Tesla also plans to create a new ‘gigafactory’ in Europe and invest in rolling out its new Semi heavy duty electric truck.
The usual concerns remain – cost control, production capacity and the fact that despite being very firmly in the growth category vehicle deliveries remain a problem. The breakneck speed of production in H2 18 seems to be a high watermark. Moreover, like a number of companies that have attracted great attention but have yet to consistently make a profit, Tesla has not had to contend with a recession yet.
The Analyst Recommendation tool on the Markets.com platform indicates the Street remains split – analysts still don’t agree on this one.
Apple – The fiscal first quarter is always Apple’s strongest as it chalks up the holiday season and new iPhone models. We’ve had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward.
The stock has run up quite a head of steam to hit $300. We’ve seen a potential topping pattern on the chart as it fails to make new highs and the 14-day RSI indicating overbought conditions. MACD could also be turning. Moreover, on a trailling 12-month (TTM) basis Apple’s PE has soared to 25 from around 11 last year. Upside potential may therefore be limited. A lot depends still on iPhone sales.
Our analyst recommendations tool highlights that while the broad consensus on the Street is positive, the average price target indicates the stock may have topped out, temporarily at least.
One thinks that the Street is just playing catch up and will rerate, although it’s fair to say that Apple stock is relatively expensive vs its historic average.
Apple posted record Q4 revenues despite slower iPhone sales and guided for a very strong holiday quarter. Earnings per share beat handsomely at $3.03 vs $2.84 expected and up 4% year on year. Revenues jumped 2% to $64bn.
iPhone sales matter a lot less…
The improvement on both top and bottom line in the fiscal fourth quarter came despite a 9% drop in iPhone sales. Whilst that’s not as bad as the 15% type level seen recently, it shows how much of the lifting is now being done by other parts of the business. It suggests Apple is reaching an inflection point where it’s no longer dependent on the iPhone for EPS growth. This is across the board a positive. Indeed for 2019 as a whole, iPhone sales fell 14% but the stock was up 89%.
…because Services and Wearables are roaring ahead
Wearables, Home and Accessories knocked it out the park, with sales up 54% to $6.52bn. This was by far the fastest growing segment and will account for an increasing percentage of sales, currently c10%.
Services growth remains good at 18%. Stripping out certain one-off items that knocked the Q3 number, this represents consistent sequential growth from the last quarter. Whilst still very positive, it’s a comedown from the +20% levels seen in preceding quarters. But with a clutch of new services rolling out, not least Apple TV+, a renewal of past growth rates is on the cards. Higher margin, recurring Services revenues are a key reason why multiple expansion may be maintained.
American consumers are in good shape
The US consumer remains strong. Almost all the growth came from the Americas, which is dominated by US sales. American consumers still look in good shape. Sales in Europe, Japan and Greater China fell.
Holiday quarter could be record breaking
Guidance for the fiscal first quarter is bullish, and Apple could mark a record for quarterly revenues. Apple is guiding revenue of between $85.5 billion and $89.5 billion. Early indicators suggest the iPhone11 is performing well with consumers. Favourable comparisons in China from last year are assured, given the previous year’s downswing in iPhone sales in the region.
Week Ahead: Earnings season and US-China trade deal in focus
US earnings season gets underway next week as the big banks begin reporting on Jan 14th. Weak corporate earnings growth could dent optimism around US stocks, but with the fourth quarter of 2019 out of the way, the market’s real focus is going to be whether we get the 10% earnings growth forecast in 2020.
Consensus estimates indicate a 1-2% decline in Q4 earnings, but the tendency to beat expectations suggests we will see earnings growth, albeit small.
Last year we saw multiple expansion massively outweigh earnings growth as the driver of the 28% rise in the S&P 500 last year. This poses problems as it means valuations are already rather stretched and reliant on strong EPS growth in 2020. However, ignoring the 2018 Christmas drubbing, the S&P 500 has only risen by a modest 10% from the 2018 highs.
US, China to sign phase one trade deal
Markets will surely take heart as January 15th approaches – that’s the deadline for signing the phase one trade deal the US and China managed agree in December. But there have been too many falls at the final hurdle to say that this is deal is done until the ink is dry. Markets could yet be in for a surprise, and even if phase one is agreed, we’ll then have to face the reality that phase two negotiations could be even more complex.
Germany, China growth data
World economic growth is expected to tick higher to 2.5% this year, but will German FY 2019 GDP and China Q4 growth figures shake the foundations of those predictions? Both have seen growth slow thanks to the US-China trade war, while Germany has also struggled due to Brexit uncertainty. The German economy is expected to have expanded 0.5% during 2019, while China’s Q4 reading is expected to tick higher to 6.1% from 6% in Q3.
US CPI – Fed to let inflation run hot
US inflation data is due for release on Tuesday 14th. Expectations are for price growth to moderate to 2% from 2.1%. The Federal Reserve in December made clear that it is prepared to let inflation run hot to compensate for months where it runs below target.
Jan 14th – JPMorgan Chase & Co – Q4
Jan 14th – Wells Fargo & Co – Q4
Jan 14th – Citigroup – Q4
Jan 14th – Markit – Q4
Jan 15th – Bank of America – Q4
Jan 15th – United Heatlh – Q4
Jan 15th – BlackRock – Q4
Key Economic Events
(All times GMT)
09.30 GMT – Jan 13th – UK Monthly GDP / Production Data
15.00 GMT – Jan 13th – CAD BOC Business Outlook Survey
03.00 GMT – Jan 14th – China Trade Balance
13.30 GMT – Jan 14th – US Inflation Data
07.00 GMT – Jan 15th – Germany Full Year 2019 GDP Growth
09.30 GMT – Jan 15th – UK Consumer Price Index
15.30 GMT – Jan 15th – US EIA Crude Oil Inventories
Jan 15th – US-China Phase One Trade Deal Signing Ceremony
12.30 GMT – Jan 16th – ECB Monetary Policy Meeting Accounts
13.30 GMT – Jan 16th – US Retail Sales
15.30 GMT – Jan 16th – US EIA Natural Gas Storage
02.00 GMT – Jan 17th – China GDP
09.30 GMT – Jan 17th – UK Retail Sales
15.00 GMT – Jan 17th – US Preliminary University of Michigan Sentiment
Week Ahead: UK General Election plus FOMC, ECB, Aramco IPO
British voters head to the polling booths on Thursday with the result critical to the future of Brexit, the economy and by extension, UK equities and sterling. Polls have consistently shown the Conservatives are heading to a comfortable majority, but a last-ditch surge by Labour is not out of the realms of possibility. Follow our election coverage daily on XRay.
Final FOMC meet of the year
The last FOMC meeting of the year is not expected to produce any change in the fed funds rate, but it will be another chance to see how close the Fed is to further cuts having signalled a pause to its easing cycle when it cut rates for the third time in succession in October. Lately it’s made it pretty clear that it would require a significant and sustained rise in inflation to warrant a hike, whilst there have even been reports that the Fed is thinking about changing its 2% inflation target to allow inflation to run even higher.
Saudi Aramco to start trading
The bookbuilding is complete and the price has been set – trading on Aramco shares on the Tadawul is expected to start this week. After the OPEC meeting last week and following concerns about valuations, this will be the largest and most hotly anticipated IPO in history. Our Aramco Grey Market is still open for new orders.
First ECB meeting for Lagarde
The first outing for Christine Lagarde as the chief of the European Central Bank (ECB) will be a closely-watched affair. Whilst markets do not expect the Governing Council to back any changes to rates or QE, the commentary from Ms Lagarde in the press conference will be picked over in fine detail for clues about her leanings and what we can expect from the ECB over the coming years.
Dec 12th – TUI full year results
Dec 12th – Dixons Carphone interim results
Dec 12th – Adobe Q4 2019
Dec 13th – Balfour Beatty trading update
Key Economic Events
(All times GMT)
Dec 9th – Tentative – China trade balance
Dec 10th – 00:30 GMT – Australia NAB business confidence
Dec 10th – 01;30 GMT – China CPI inflation
Dec 10th – 09:30 GMT – UK GDP, manufacturing production
Dec 10th – 10:00 GMT – German ZEW economic sentiment
Dec 10th – 23:30 GMT – Australia Westpac consumer sentiment
Dec 11th – 13:30 GMT – US CPI inflation
Dec 11th – 19:00 GMT – FOMC statement, fed funds rate
Dec 11th – 19:30 GMT – FOMC press conference
Dec 12th – 08:30 GMT – Swiss National Bank policy rate
Dec 12th – 12:45 GMT – ECB interest rate, policy statement
Dec 12th – 13:30 GMT – ECB press conference
Dec 12th – All day – UK General Election
Dec 13th – 13:30 GMT – US retail sales
Dec 14th – Tentative – US Treasury Currency Report (currency manipulators report)
Week Ahead: OPEC set to extend cuts
OPEC to extend cuts
OPEC members convene in Vienna this week on Dec 5th and 6th. Markets are expecting OPEC and ally Russia to extend their oil production curbs but could be taken off guard should the cartel opt for deeper cuts. Currently the OPEC+ coalition have an agreement to reduce production by 1.2m barrels a day. Most participants think that OPEC+ will agree to extend cuts through to June, the next Vienna meeting, or even by a full year. The problem for OPEC is that while prices have recovered from the lows of Christmas 2018, there is not yet enough material uplift for all members to consider that the cuts have really worked enough to their advantage, with fiscal break-evens sitting around $80-$90 a barrel for most members.
Will the RBA cut rates?
Markets have strongly priced in odds of no change to interest rates from the Reserve Bank of Australia on Tuesday; but will the accompanying statement hold any surprises? Minutes from the November meeting showed policymakers agonised over the poor run of data and seriously considered cutting rates. It’s widely anticipated that the RBA will cut again, but the question is one of timing.
There are just a few signs that PMI surveys have hit the bottom. Can Chinese manufacturing continue to defy the pressures from the trade war with the US after October’s near three-year high? We may find out with the release of the Caixin manufacturing PMI on Monday. A month ago, the survey hit its highest in three years as factory activity expanded in defiance of the trade war.
This will be followed later the same day with the ISM report for the US manufacturing sector. Elsewhere, the UK services PMI on Wednesday will be closely watched for signs about the state of the UK economy as the election and Brexit approach.
The monthly US labour market is always closely monitored, but with the Fed apparently on hold, it’s unlikely to deliver as much volatility as it has in days gone by. Whilst running at a slower rate than 2018, US labour market strength remains intact. Last month’s report showed nonfarm payrolls up 128k in October, well ahead of the 85k expected, whilst there were upward revisions to the prior two months. The August print was revised up 51k to 219k and the September number was hiked by 44k to 180k. The 3-month average at 176k against the 223k average in 2018. The revisions are really the bright spot as it indicates August and September prints were nowhere near as weak as we thought.
Bank of Canada
On Wednesday the Bank of Canada meets but is not expected to change course. Indeed the central bank is now expected to hold rates through to the end of 2020, according to a Reuters poll of economists. Markets have been eyeing a cut but governor Stephen Poloz and deputy Carolyn Wilkins have said that monetary conditions are ‘about right’ for now.
3 Dec – Salesforce Q3
4 Dec – Campbell Soup Co Q1 2020
4 Dec – Synopsys FY 2019
5 Dec – Dollar General Q3
5 Dec – Kroger Q3
Key Economic Events
(All times GMT)
02 Dec – 00.30 GMT – Australia building approvals
02 Dec – 01.45 GMT – China Caixin manufacturing index
02 Dec – 09:30 GMT – UK manufacturing PMI
02 Dec – 15:00 GMT – US ISM manufacturing PMI
03 Dec – 03:30 GMT – RBA cash rate, rate statement
04 Dec – 00:30 GMT – Australia GDP
04 Dec – 09:30 GMT – UK services PMI
04 Dec – 13:15 GMT – US ADP nonfarm employment change
04 Dec – 15:00 GMT – BoC rate statement, overnight rate
04 Dec – 15:00 GMT – US ISM non-manufacturing PMI
04 Dec – 15:30 GMT – US crude oil inventories
05 Dec – All Day – OPEC meetings
06 Dec – All Day – OPEC meetings
06 Dec – 13:30 GMT – US nonfarm payrolls, average earnings, unemployment rate
Week Ahead: Top US data in focus, Hong Kong row to weigh on trade talks
US data to influence Fed outlook?
Top-tier US data this week could help shape expectations for the final meeting of the Federal Open Market Committee this year. Markets don’t expect any changes, but now that the Fed has declared that further adjustments will hinge upon the latest data prints, the upcoming CB consumer confidence report on Tuesday and Wednesday’s second Q3 GDP reading, durable goods orders, and personal incoming and spending figures could influence the outlook for policy over the coming months.
Trade talks to falter on Hong Kong row?
A spat over new US legislation supporting Hong Kong independence and banning export of some crowd control munitions to Hong Kong authorities has become a major new hurdle in the race for a trade deal. China is sure to interpret the new bills as interfering in its affairs and it is therefore hard to see Beijing being willing to agree to US demands in order to prevent the scheduled tariff increases in December. Stocks took a beating last week and there could be more pain to come.
Germany and Eurozone inflation
Preliminary readings of German and Eurozone inflation are due on Thursday and Friday respectively. Price growth remains sluggish despite everything the European Central Bank has thrown at it. Even an uptick is unlikely to do much for sentiment on its own, although there could be some upside for EUR pairs – it won’t make an unwinding of stimulus happen any faster, but at least it’ll show things aren’t getting any worse.
Best Buy earnings
Best Buy reports earnings for the third quarter of its fiscal 2020 year before the opening bell on the 26th. Analysts expect EPS of $1.04, which represents an 11.8% year-on-year increase. Revenue is projected 1.5% higher year-on-year at $9.73 billion. The stock recently came close to reclaiming the 2019 high of 78.45 recorded in late July, but despite retreating from that level remains over 40% higher year-to-date.
25 Nov – Hewlett Packard Enterprise – Q4
26 Nov – Dell – Q3 2020
26 Nov – Dollar Tree – Q3
26 Nov – Best Buy – Q3 2020
26 Nov – Autodesk – Q3 2020
27 Nov – Xiaomi – Q3
27 Nov – British American Tobacco – Trading Update
Key economic events
(All times GMT)
25 Nov – 09.00 GMT – German Ifo Business Climate
26 Nov – 07.00 GMT – Germany GfK Consumer Confidence
26 Nov – 15.00 GMT – US Conference Board Consumer Confidence
27 Nov – 13.30 GMT – US GDP (2nd Estimate), Durable Goods Orders, Personal Income/Spending
28 Nov – 13.00 GMT – German Preliminary Inflation
29 Nov – 10.00 GMT – Eurozone Flash Inflation
29 Nov – 13.30 GMT – Canada GDP
30 Nov – 01.00 GMT – China NBS Manufacturing PMI