Earnings season: Facebook beats Wall Street but signals slowing growth

Mark Zuckerberg’s social media behemoth enjoys a very strong record, but headwinds may blow strong across the rest of the year.

Facebook earnings

Facebook’s headline stats

Facebook posts its fastest-growing quarter since 2016 with revenues expanding 56% in the quarter ending June 2021.

According to its results, Facebook notched up a 47% rise in its average price per ad. It also increased the volume of ads it delivered by 6% year-on-year.

That’s quite an interesting dichotomy. While revenues generated from its ad service is up massively, the number of ads delivered hasn’t kept pace. This may feed into problems down the line. It could also ultimately show how much more Facebook is currently charging for ad space.

Monthly average users (MAUs) also grew. Now, approximately 2.9 billion customers regularly use the social media network each month. Daily active users (DAUs) total 1.91bn, in line with Facebook expectations.

Across its multiple apps, which includes Messenger, WhatsApp and Instagram, Facebook’s total users clocked in at 3.51bn for the quarter – up from the 3.45bn registered in Q1.

Let’s have a look at the overall breakdown of Facebook’s Q2 2021 numbers:

  • Earnings – $3.61 per share vs. $3.03 analyst estimates
  • Revenue – $29.08 billion vs. $27.89 billion analyst estimates
  • DAUs – 1.91 billion vs. 1.91 billion analyst estimates
  • MAUs – 2.90 billion vs. 2.91 billion analyst estimates
  • Average revenue per user (ARPU): $10.12, vs. $9.66 analyst estimates

Of course, ad revenues are Facebook’s chief cash generator, but it also has a variety of other products which bring in cash. Its “Other” segment covers commercial hardware, including Oculus Rift VR headsets. Revenues generated from this sector of Facebook’s business fell below the expected $685.5m at $497m.

Free cash flow also dropped. Estimates suggested it would total $9.08bn for this quarter. In reality, the figure was $8.51bn.

Facebook guidance

Regarding its 2021 H2 performance, Facebook said it expects “year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.”

This is essentially unchanged from the guidance issued at the end of Q1.

A lot of Facebook’s future direction comes from what CEO Mark Zuckerberg calls the “metaverse”.

Zuckerberg describes this as “a virtual environment where you can be present with people in digital spaces.”

How this differs from the current experience is really yet to be seen.  A new team has been formed at Facebook HQ to develop this vision into a tangible reality. Zuckerberg is certainly optimistic.

“In the coming years, I expect people will transition from seeing us primarily as a social-media company to seeing us as a metaverse company,” he said.

Advertising will probably still play a key role here, but Facebook may continue to develop its VR capabilities in order to pull off this project.

The key thing the markets took away from Facebook’s call with analysts and journalists was a slump in revenue growth. Facebook share prices fell 5% after the company’s guidance announcement, showing slowing revenues will be a thorny issue for investors moving forward.

This mirrors other tech giants like Tesla and Apple who experienced similar share price dips after reporting this quarter’s earnings, albeit for different reasons.

The social media giant said ad headwinds are most likely to going to blow strongly throughout the rest of 2021. Regulatory and platform changes were cited, as well as Apple’s iOS 14.5 update, which allows users more flexibility in how apps track their activity.

Rivals Snap and Twitter have seemingly managed to navigate their way through the iOS changes. It’s now up to Facebook to do the same.

Then there is government scrutiny and lawsuits against Facebook. A recent antitrust complaint from the Federal Trade Commission was dismissed by judges, alongside a separate complaint, filed by 48 states attorneys. The FTC, however, is determined to fight this and give Facebook another day in court. It has until August 19th to alter its complaint.

President Biden is apparently no fan of Facebook either. The sitting president has stated that Facebook is not doing enough to combat the spread of misinformation on its platforms, even going so far as to say, “they’re killing people”.

What does the market think about Facebook?

Despite the 5% post-report drop in pre-US market trading Facebook shares experienced on Wednesday, 2021 remains a strong year for price action.

Facebook shares are up 37% since January, beating the S&P 500’s 17% rise in the same period.

Analyst consensus is a strong buy:

Facebook analyst consensus

News sentiment is also bullish, placing Facebook higher than the sector average:

Facebook news sentiment

So, a strong quarter for Facebook. What’s next? Challenges will likely intensify, but the onus is now on Zuckerberg et al to stick to their forecasts and keep things in line with market expectations as the year progresses.

To see which large caps are still due to report on Wall Street this season, make sure you check out our earnings calendar.

Stocks firm, oil runs into technical problems

European stocks moved higher in early trade Tuesday after a sizeable down day in the previous session and a rather limp handover from Asia. The FTSE 100 recaptured 7,100, rising 0.5%, after slipping below this level yesterday, having closed down 0.9%. European indices continue to trip along recent ranges having set post-pandemic highs earlier this month as the market looks for more direction re inflation and bond yields. Everyone seems happy to buy the line that inflation will be transitory: the super-hot peaks we are getting right now will be, we knew that as base effects and pent-up demand played out; the question is what sort of new inflation regime persists beyond this summer. Once the inflation genie is out the bottle it is hard to put back in easily.

 

US markets are grinding higher along the path of least resistance but on lower vols and declining breadth. As bond yields remain in check and inflation expectations cool, big tech and other bond proxies are providing the heavy lifting for the indices. The S&P 500 inched to a new all-time high with just healthcare and utilities up and twice as many advancers as decliners. Energy was smoked, registering a decline of 3%, with Valero, Halliburton, Phillips 66, Occidental and Marathon all down 5%. Cruise operator stocks sank 6-7% as Carnival announced an additional stock sale of $500m, whilst Disney delayed a planned test voyage. Growth is beating value right now as the reflation trade unwinds: the Nasdaq rallied 1%, whilst the Dow fell 151pts as the likes of Chevron and Boeing pulled back. US 10yr yields are back under 1.5%, and this morning US stock futures are flat. After a pause, AMC rallied more than 7%. SoFi (Nasdaq: SOFI) is the most talked about stocks on Wallstreetbets, with WKHS, WISH, CLOV, BB, SPCE and GME also still garnering some of the most mentions. 

 

Among the big tech leaders making gains was Facebook, which rallied 4% to take its market capitalisation above $1tn for the first time as it saw off a monopoly legal threat. A judge rejected two antitrust lawsuits brought by the Federal Trade Commission and a coalition of 46 states. The news removed a significant headwind for the stock, though the FTC has a month to refile its complaint. It seems that the judge’s rejection of the case was based on the lack of evidence, or the way it was presented, which could be remedied with a new lawsuit.  

 

Elsewhere, in FX the dollar is mildly bid with GBPUSD testing the Jun 22th low around 1.3860 and EURUSD creeping back to 1.1910. Chart pattern looks a bit bearish and flaggy.

 

EURUSD price action chart.

Crude oil turned lower through the day after touching its best levels in almost three years. So far this market has been a buy-the-dip affair, and market fundamentals seem solid as supply remains tight, but we just need to be mindful from a technical perspective. Yesterday’s outside day bearish engulfing candle is one red flag, the bearish MACD crossover on the daily chart is another. Not necessarily the top but would call for a potential near-term pullback such as a ~10% correction as seen in Mar/Apr this year. Anyway, market fundamentals remain firm and OPEC+ has scope to increase in August – it would be about 1.5m bpd short of demand without any additional output from OPEC or Iranian oil coming back online.

Oil price movement chart.

Bitcoin – still holding under the 200-day SMA but the selling may be done now as bears tire and weak hands are out; there is a potential rip higher incoming.

Bitcoin price action chart.

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.

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Fed sticks to its guns, Apple and Facebook earnings blowout

The Federal Reserve remains resolutely firm. Jay Powell reiterated that the central bank is not even close to talking about tapering bond purchases, a move that would begin to unwind some of the extraordinary accommodation delivered in the wake of the pandemic. The Fed chair said the US economy is still a long way from achieving the progress required to dial back stimulus – over 8m jobs are still lost and that means we need several blowout jobs reports to get there. Powell also stressed that policymakers are not worried about inflation and think any price pressures will prove temporary.  The Fed is doubling down here and sticking to its guns. Advance GDP numbers due to today should show the US economy roaring back. 

 

All this should be a green light for stocks, but the markets are wary right now as they tread record highs and all this stimulus is priced in and the macro outlook well understood. The US 10-year bond yield moved to test the 1.65% level. US stock markets closed marginally lower, though the small cap Russell 2000 managed to eke out a small gain. Futures point to solid gains for Wall Street later today when the cash equities open. European stock markets are largely higher in early trade today, with the FTSE 100 popping its head above 7,000 again on a raft of largely positive corporate updates.

 

Apple reported another stunning quarter, with sales soaring from last year and a fresh round of buybacks. The company raised the dividend by 7% to $0.22 per share and announced $90 billion in share buybacks. Apple revenues grew more than 50% year-on-year, with total sales of $89.58bn vs around $77bn expected. EPS came in at $1.40 vs $1.00 expected. At all levels, we can see Apple outperforming even the most bullish expectations. The core iPhone business saw sales up 65% to $47.94 billion vs. $41.43 billion estimated. This was stunning – the iPhone remains the golden goose and way in which consumers become part of the Apple ecosystem. Services – a higher margin business that includes things like the Cloud, App Store, Apple Music – grew revenues by 26.7%. Revenues in China rose 87% – albeit this was in comparison to a quarter last year in which China was most affected by the pandemic. Shares rose 2% in the after-hours market. A really exceptional quarter – it’s not a surprise that it exceeded quite a low bar, but noteworthy just by how much.

 

Facebook shares advanced 6% in after-hours trading as the company reported posted forecast-beating revenues and earnings. However, the company warned investors that growth could slow as new Apple privacy policies would make it harder to targe ads on social media. I’m fairly used to Facebook using earnings calls to warn that rates of growth could slow in future, and I think investors are too. Earnings per share came in at $3.30 vs $2.37 expected on revenues of $26.17bn, which were about $3bn more than expected and up 48% on a year before. Net income rose 94% to $9.5bn. Average revenues per user came in at $9.27 vs. $8.40 expected. 

 

BT confirmed it is looking to sell its TV business.  This has been a long time coming – the vast sums BT paid to secure football rights was always at odds with the core business. In a statement responding to press speculation, the company says “early discussions are being held with a number of select strategic partners, to explore ways to generate investment, strengthen our sports business, and help take it to the next stage in its growth”. Whilst clearly the pandemic has badly hit sport, BT has never set too well in the content space; there are many with deeper pockets who do content. Ballooning costs left BT paying a hefty bill for sports that wasn’t being covered. It’s further evidence of chief executive Philip Jansen ripping up the Gavin Patterson era playbook to focus squarely on the Openreach rollout and modernise BT. 

 

Shell raised its dividend after beating expectations thanks to higher oil prices and improved margins in its chemicals business. Adjusted net income rose 13% from a year before. Net debt fell $4bn. Meanwhile French firm Total said profits are back to pre-pandemic levels as adjusted net income hit $3bn, higher than the pre-crisis first quarter of 2019. 

 

Unilever shares rose over 2% as the company announced it will commence a €3bn share buyback scheme next month after a 5.7% jump in sales in the first quarter. Most (4.7%) came from higher volume, with just 1% from stronger pricing. For 2021 Unilever stuck to its target of underlying sales growth to be within 3-5%, with the first half at around the top of this range. Management also pointed to additional supply chain costs, with rising commodity and freight prices a factor as margins are seen declining a touch in the first half before picking up later in the year. Ongoing covid restrictions in some areas of the world continued to support in-home sales, whilst the slackening of restrictions in some geographies boosted out of home sales. Mayonnaise and ice cream were strong sellers. India and China both posted strong double-digit growth against a backdrop of strict lockdown measures which impacted the prior year. 

 

NatWest reported Q1 2021 operating profit before tax of £946 million and an attributable profit of £620 million. This was boosted by the reversal of provisions for bad loans as government support schemes reduced the amount of loan delinquency banks had anticipated. NatWest booked at net impairment credit of £102m. But shares fell as the total income was a slight miss, coming in at £2.66bn vs £2.7bn expected. Net interest margin fell 2bps to 1.64%. Shares declined more than 3% in early trade. Standard Chartered continued the run of positive news from the large banks as it recorded underlying pre-tax profit rising 18% to $1.4bn as lower impairment charges and strong cyclical recovery in the global economy offsetting lower interest margins. Return on tangible equity rose 220bps to 10.8% and management reaffirmed their view that income will start growing again in the second half of the year and for impairment charges to reduce significantly.

 

Smith & Nephew shares rose 6% to the top of the FTSE 100 after reporting Q1 revenue up 6.2% on an underlying basis (11.5% reported) to $1.264bn. This included 3.4% from foreign exchange and 1.9% from acquisitions, whilst the quarter also included two more trading days than the equivalent 2020 period. 

Earnings season: estimate-topping stocks to watch

It’s the final week of April: a time that traditionally brings opportunities for earnings-driven volatility.

Many companies reporting their quarterly earnings have strong track records of beating analyst estimates and subsequently seeing their share prices rise.

Bespoke Investment Group, as reported by CNBC, has pulled together the below list of firms that, 90% of the time, beat estimates, and enjoy average day-after jumps of at least 1%.

Stock Company EPS beat % Average 1 day % price move
TDY Teledyne Tech 100 2.18
AVNT Avient 100 1.5
TRU TransUnion 100 1.27
NGVT Ingevity 100 1.74
GFF Griffon Corp 100 11.41
OPI Office Properties 100 2.62
UFI Unifi Inc 100 2.33
CSGP CoStar Group 96.7 2.18
EXPO Exponent 96.6 1.56
SHOP Shopify 95.7 3.54
PATK Patrick Industries 94.7 1.2
JBT JBT Corp 93.5 1.75
MA MasterCard 93.2 2.09
SLAB Silicon Labs 92.3 1.29
SYNH Syneos Health 92.3 3.22
FB Facebook 91.4 2.52
SPSC SPS Commerce 90.7 1.66
ABBV AbbVie 90.3 1.26
SPGI S&P Global 90 1.6

 

These reports suggest earnings are off to a great start this quarter. Companies have so far reported aggregate earnings 23.6% above expectations, according to FactSet. If the trend continues, then we’ll be looking at the highest surprise percentage since FactSet began recording the metric in 2008.

Interestingly, amongst the megacap tech companies reporting this week, Facebook is the only one to make the list. Bespoke highlights its average day-after jump of 2.5%. Facebook reports quarterly earnings today after the closing bell.

Facebook’s average analysts’ price target was up approximately up 14% over Friday’s level on Tuesday, trading at $342.37 per share, feeding into potential longer-term upsides.

Shopify, the Canadian e-commerce company, has consistently been one of the fastest growing stocks for the past 3 years. Since 2018, Shopify shares have grown a massive 700%.

MasterCard is also a bit of a big hitter with a proven ability to come out above analysts’ expectations. The credit card firm beats predictions 93% of the time. MasterCard currently enjoys an 85% buy rating on Wall Street, reports FactSet, with the stock up 9% year-to-date.

Looking to small caps, some of those on Bespoke’s list as consistently punching above their weight, estimates-wise, include Office Properties Income Trust and TransUnion.

Adelanto semanal: reunión de la Fed, PIB estadounidense y resultados de los gigantes tecnológicos

En la semana entrante, la Reserva Federal celebrará su primera reunión de este año, con muchas caras nuevas, pero con un improbable cambio importante en su política. También se publicará el PIB del país relativo al 4T de 2020. Según se deduce de los pronósticos, las perspectivas en torno a este dato no son unánimes, pero sí optimistas. Por último, los gigantes tecnológicos (también conocidos como «big techs») abanderarán a las empresas de gran capitalización en la nueva tanda de publicaciones de la temporada de ganancias.

Reunión y conferencia de prensa del FOMC

La primera reunión de 2021 de la Reserva Federal tendrá lugar la semana que viene marcada por los planes de mayor estímulo del recién investido presidente Joe Biden, así como por el llamamiento de la nueva Secretaria del Tesoro, Janet Yellen, para se «piense a lo grande» en cuanto a la política fiscal. La cifra a la que se calcula que ascenderá el estímulo económico adicional es de 1,9 billones de dólares, mientras EE. UU. intenta apuntalar su economía frente al continuo azote de la Covid-19.

Este mes de enero, se ha producido la rotación de votos con cuatro nuevos presidentes regionales de la Fed con derecho a voto, una rotación que podría apuntar a un sesgo más acomodaticio en 2021. En esta rotación, los presidentes Mester (conservadora), Kashkari (moderado), Kaplan y Harker (neutrales) cederán sus derechos de voto a Evans, Bostic (ambos moderados), Daly y Barkin (neutrales).

Aunque los nuevos miembros despiertan cierto interés, la Fed no virará de rumbo: su presidente, Jay Powell, dejó claro que no es el momento de hablar de reducir las compras de bonos, aunque algunos legisladores apuntan a que sí se podría abordar a finales de 2021.

Según las actas de la reunión de la Fed del pasado diciembre, los legisladores consideran que los tipos se mantendrán en el rango objetivo actual de entre el 0 y el 0,25 % hasta 2022, con una estimación a largo plazo del 2,5 %. No se prevé un aumento de los tipos este año; parece más probable que se mantenga el statu quo. Según el presidente de la Fed de Atlanta, Bostic, mucho tendría que ocurrir para que se dé ese escenario.

Existe la posibilidad de que aumenten los tipos en 2023 o, como muy pronto, en el segundo semestre de 2022. Se contemplarán tres puntos principales: la salud de las pequeñas empresas; el efecto de los programas de préstamos de la Fed —la mayoría de los cuales se cerraron a finales de 2020—; y las pérdidas de puestos de trabajo temporales frente a los fijos. No obstante, por encima de estos aspectos prevalecerá la respuesta continuada ante la pandemia de Covid-19.

A día de hoy, parece que la Fed fundamentalmente seguirá el mismo rumbo y se comprometerá a seguir la política promulgada durante 2020.

Publicación de los últimos datos del PIB estadounidense

Al igual que la práctica totalidad de las economías desarrolladas de todo el mundo, la pandemia de Covid-19 ha vapuleado a EE. UU. El próximo jueves, conoceremos la lectura previa de las estadísticas del PIB del 4T y el panorama es, cuando menos, caótico: hay tantas valoraciones del PIB como modelos de predicción.

Según el modelo de predicción GDPNow de la Fed de Atlanta, en su publicación del 15 de enero, el crecimiento anualizado del PIB es del 7,4 % en el 4T, aunque este dato surgió tras la revisión a la baja de la previsión del 8,7 % del 8 de enero. El modelo Nowcast de la Fed de Nueva York apunta a un crecimiento del 2,5 %.

El crecimiento del PIB dependerá por completo de qué sectores económicos puedan recuperarse antes. El Departamento de Comercio de EE. UU. declaró recientemente que el consumo privado —el principal motor económico del país— se había revisado ligeramente al alza, junto con las inversiones en capital fijo de las empresas. Sin embargo, estos datos se vieron atenuados por la caída de las exportaciones. El sector servicios —que acumula el 61 % del consumo privado— se contrajo un 17 % interanual en el 3T de 2020, ¿se recuperará? Lo sabremos con el tiempo.

Temporada de ganancias: Apple, Microsoft y Facebook abanderan las empresas de gran capitalización

La temporada de ganancias continúa en Wall Street. Esta semana, los protagonistas son los gigantes tecnológicos. Según parece, estas empresas no cesan de crecer, ya que los confinamientos han ayudado al sector. ¿Los resultados confirmarán este escenario?

Este podría ser el primer trimestre de los 100 000 millones de dólares para Apple, con el BPA del consenso aumentando un 12 % interanual hasta los 1,40 $. La temporada de compras navideñas entra de lleno en el periodo del informe de resultados del 1T de Apple y, con una multitud de iPhone 12 en el mercado —suficiente para justificar el aumento del 30 % en la producción este trimestre—, los indicadores que apuntan a unos extraordinarios beneficios de los gigantes tecnológicos de California son bastante sólidos.

Microsoft se ha erigido como ganador: si usted trabaja desde casa, es probable que haya tenido que lidiar con Microsoft Teams, actualmente el software de comunicación de facto preferido por empresas de todo el mundo.

Las soluciones de informática en la nube están ayudando a Microsoft a alcanzar ingresos trimestrales históricos. Gracias a la mayor consolidación de productos como Azure, GitHub, SQL Server o Windows Server, los servicios comerciales en la nube han generado un 31 % más de ingresos interanuales en el último trimestre, alcanzando los 15 200 millones de dólares. Si además tenemos en cuenta el resto de su software orientado a la productividad (a saber, Office, Teams, etc.), probablemente los ingresos de Microsoft asciendan a los 40 200 millones de dólares en el 1T de 2021.

La reputación de Facebook se ha visto ligeramente mermada en los últimos meses. La difusión de fake news y discursos de odio en la plataforma es una de las principales quejas que se han elevado a la empresa.

A pesar de ello, Facebook afirmó que el número de usuarios activos diarios creció un 12 % en el último trimestre hasta los 1820 millones, mientras que los mensuales aumentaron en la misma proporción hasta los 2740 millones, o lo que es lo mismo, poco más de una cuarta parte de la población mundial. Asimismo, los ingresos de publicidad han repuntado un 22 % interanual, aun con el boicot por parte de un millar de importantes anunciantes que sufrió la empresa.

A continuación, encontrará toda la información acerca de los resultados de las empresas de gran capitalización que se publican esta semana.

Major Economic Data 

Date  Time (GMT)  Currency  Event 
Mon Jan 25       
       
Tue Jan 26  7.00am  GBP  Unemployment Claims 
       
  3.00pm  USD  CB Consumer Confidence 
       
Wed Jan 27  12.30am  AUD  CPI q/q 
       
  3.30pm  USD  US Crude Oil Inventories 
       
  7.00pm  USD  FOMC Statement 
       
  7.00pm  USD  Federal Funds Rate 
       
  7.30pm  USD  FOMC Press Conference 
       
Thu Jan 28  1.30pm  USD  Advanced GDP q/q 
       
  1.30pm  USD  Advanced GDP Price Index q/q 
       
  3.00pm  USD  CB Leading Index m/m 
       
  3.30pm  USD  US Natural Gas Inventories 
       
Fri Jan 29  8.00pm  CHF  KOF Economic Barometer 
       
  1.30pm  CAD  GDP m/m 
       
  2.45pm  USD  Chicago PMI 
       
  3.00pm  USD  Pending Home Sales m/m 

 

Key Earnings Data 

Date  Company 
Mon 25 Jan  NIDEC  
  Philips 
  Kimberely-Clark 
  ADM 
  Graco Inc. 
  Brown & Brown 
  Equity Lifestyle Properties 
   
Tue 26 Jan  Microsoft 
  Visa 
  Johnson & Johnson 
  LVMH 
  Verizon 
  Novartis 
  NextEra Energy 
  Texas Instruments 
  Starbucks 
  AMD 
  United Technologies 
  American Express 
  General Electric 
  3M 
  Lockheed Martin 
  Canadian National Railway Co. 
  UBS 
  Capital One 
  Prologis 
  Rockwell Automation 
  PACCAR 
  D.R. Horton 
  Maxim Integrated Products 
  Epiroc 
  LG Household & Health Care 
  EQT AB 
  SGS SA 
  Varian 
  Boston Properties 
  Jacobs 
  Nitto Denko Corp. 
  Metro Inc. 
  C.H. Robinson 
  Disco Corp. 
  F5 Networks 
  W.R. Berkley 
  OBIC 
   
Wed 27 Jan  Apple 
  Tesla 
  Facebook 
  AT&T 
  Abbott Laboratories 
  Boeing 
  ServiceNow 
  Stryker 
  Lam Research 
  Anthem 
  Shin-Etsu Chemical Co. 
  Blackstone 
  Automatic Data Processing Inc. 
  Crown Castle 
  Norfolk Southern Corp. 
  Edward Lifesciences Corp. 
  FANUC CORPORATION 
  MediaTek 
  Lonza AG 
  CPR 
  General Dynamics 
  TE Connectivity Ltd 
  Las Vegas Sands Corp. 
  Amphenol Corp. 
  ITC Ltd. 
  Xilinx Inc. 
  V.F Corp 
  Corning Inc. 
  Axis Bank 
  Ameriprise Financial Inc. 
  Hormel Foods Corp. 
  Teradyne 
  Nasdaq Inc. 
  Nomura Research Institute 
  Essity AB 
  Cheil Industries 
  MarketAxess Holdings 
  Hologic 
  Omron  
  United Rentals 
  Rollins Inc. 
  PTC Inc 
  Duke Realty 
  Teledyne Technologies 
  Raymond James Financial 
  Cree Inc. 
  Packaging Corp. of America 
  Whirlpool 
  Textron 
  MKS Instruments 
  Hess Corp. 
   
Thu 28 Jan  Samsung 
  Mastercard 
  Comcast 
  Danaher 
  McDonald’s 
  Diageo 
  Mondelez 
  Altria 
  Sherwin-Williams 
  Air Products & Chemicals 
  Atlassian 
  Northrop Grumman 
  HOYA 
  Dow 
  Walgreens Boots Alliance 
  T. Rowe 
  Xcel Energy 
  ResMed 
  Fujitsu 
  Hyundai 
  Stanley Black & Decker 
  Southwest Airlines 
  Skyworks Solutions 
  McCormick & Co. 
  Rogers Communications 
  Arthur J. Gallagher & Co. 
  Canon 
  UPM-Kymmene 
  Dover Corp. 
  Advantest 
  Nucor 
  Western Digital 
  Celanese Corp. 
  NVR Inc. 
  Principal 
  Eastman 
  PulteGroup 
  WestRock Co. 
   
Fri 29 Jan  Eli Lilly 
  SAP 
  Honeywell 
  Keyence 
  Charter Communications 
  Caterpillar 
  SK Hynix 
  Colgate-Palmolive 
  M3 
  Atlas Copco 
  Ericsson 
  Johnson Controls 
  H&M 
  Phillips 66 
  BBVA 
  Simon Property Group 
  Astellas Pharmacy 
  Simens Gamsea 
  Komatsu 
  LyondellBasell 
  WeyerHauser 
  LG Electronics 
  Synchrony Financial 
  Church & Dwight Co. 
  Sun Pharmaceutical 
  SG Holdings 
  Telia 
  CAIXABANK 
  NEC 
  Svenska Cellulosa AB 
  Booz Allen Hamilton 

 

 

 

Coronavirus outbreaks leave stocks stuck in their ranges

Virus outbreaks in the US continue to weigh on the mood, as it suggests the run-up in stocks on hopes of a V-shaped economic recovery may be overly optimistic. Several states, mainly in the south, have been forced to re-impose lockdown restrictions after being the first to reopen. Dr Fauci described it as a ‘serious problem’. The dangers of reopening too quickly seem all too apparent, but investors are also keeping an eye on outbreaks in Tokyo, Australia and China.

European equities were a touch softer but trading near the flatline on Monday morning, with a general lack of direction about today’s trade. Major indices tracking around the middle of their June ranges after Asian equities fell. US equities were lower Friday and finished down for the week but, as the month ends, stocks have enjoyed a very strong quarter.

The FTSE 100 is up over 8% quarter-to-date, while the S&P 500 has rallied over 16% in Q2 and the DAX has surged 21%. Valuations remain the concern as we head into earnings season with the S&P 500 still trading at more than 22x on a forward basis.

Coming up this week – Powell testimony, US nonfarm payrolls

Of course stocks haven’t only rallied because of reopening economies – enormous liquidity thanks to the coordinated action of central banks has been key. Central bankers have been striking similar notes in terms of the response to the crisis and Jerome Powell, the Federal Reserve chairman, will testify in Congress again this week. The Fed’s rather downbeat assessment of the economic recovery helped to stop the rally in its tracks and since then indices have been trading ranges.

The US jobs report – on Thursday this week due to the July 4th holiday – will provide an important view on the pace of recovery, but we should note that the weekly unemployment claims numbers are proving a more sensitive and up-to-date barometer, not least since there are problems with the data gathering for the monthly nonfarms report.

Facebook shares tumble on ad boycott, but how long can brands stay away?

Facebook shares tumbled more than 8% on Friday as a growing number of companies join a boycott of the platform over hate speech. We saw how a boycott of Facebook by users failed to move the needle on earnings, but this time it’s different – it’s the big brands that pay the big bucks and the loss of Unilever, Starbucks, Coca-Cola, Levi’s and Diageo among others will create a headwind to revenue growth in the coming quarter.

I would think Facebook can and will do a lot more and will be able to take steps to assuage brands’ concerns, allowing the stock to recover. Moreover, will brands be able to avoid Facebook for very long? Virtue signalling is one thing, but they also need to shift product.

Crude oil was steady with WTI (Aug) around $38 after rallying off the medium-term support around $37.50. OPEC+ compliance in June is expected to be higher than in May, mainly because Saudi Arabia, Oman, Kuwait and the UAE are cutting above their quotas. In FX, cable continues to track its channel lower with a new low put in at 1.2315, with the previous support in the 1.2390 region now acting as resistance.

Twitter stock sinks as Trump prepares executive order targeting social media

Twitter stock dived earlier today on the deepening feud between the platform and president Trump, which could see social media slapped with new regulations.

Twitter was down over -4% in pre-market trading, but has since pared losses to -2%. Facebook had also fallen nearly, trading down -2% before the opening bell, but has now edged into positive territory.

The losses come after the White House announced that Trump would sign an executive order today targeting social media companies, with the aim of addressing what he alleges is bias in their strategies for content moderation.

Why is Trump targeting Twitter?

A few days ago Trump posted a tweet which contained several claims about postal ballots. Many states are expanding their postal balloting because of concerns that in-person voting could lead to a spike in Covid-19 infections.

Source: Twitter

Twitter used its fact-check feature on the President’s tweet. A small blue exclamation point is displayed under the tweet, alongside a link that reads: ‘Get the facts about mail-in ballots’. The link redirects to a page calling the claim ‘unsubstantiated’ and countered assertions in a section entitled ‘What you need to know’.

Unsurprisingly, Trump isn’t happy about it. The president has accused Twitter of interfering with free speech and censoring conservative voices, and even of interfering with the 2020 presidential election.

What can Trump’s executive order do?

According to CNBC, the order would direct the Federal Communications Commission to review certain regulations under the Communications Decency Act. The law in question, known as Section 230, is often criticised by both sides of the political spectrum.

It states that online platforms are not liable for the content that their users post, and also that they can moderate “objectionable” material without being viewed as either a publisher or a speaker under the law. Some conservatives had claimed this allows the platforms to remove views that they disagree with.

The law was originally introduced to protect growing tech companies. Platforms like Twitter and Facebook would never have made it off the ground if they could be held liable for user’s posts: they’d have been sued into oblivion a long time ago. But having to vet every post would be impossible: currently almost 9,000 tweets are posted every second.

As we noted this morning, Trump can put more of a regulatory squeeze on companies and raise their costs. He could push for changes to the current laws so that it is easier for regulators to take action against tech companies who are deemed to be violating the free speech of their users.

More pain to come for Twitter stock as US election approaches?

While Twitter and Facebook have recouped the worst of the day’s losses, it could be the start of an uncomfortable period for the platforms. With the US election just a few months away, a lot of content on both sides will likely be reviewed, challenged, and removed by social media companies. When Republicans are the ones being censored, Trump’s ire will grow.

Trump could see going after social media companies as another way to rally his fanbase, but it’s worth remembering that the president has reaped the benefits of the platform. He has 80 million followers – any action of his that materially damages the platform also damages his own reach.

Trump’s actions represent a new downside risk for social media stocks. You can trade the top companies in the sector as a single CFD with our unique Social Media Blend.

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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 

Key Events

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 

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