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European stock markets are a flattish, unexciting mixed bag in early trade on Monday as they continue to tread the range of the last fortnight without too much conviction. Shares in Frankfurt nudged up as London slipped a fraction. US stocks closed down on Friday after a choppy week. Asian shares were broadly higher overnight.

Democrats are hopeful of making swift progress on stimulus, but the impeachment proceedings of Donald Trump could see bipartisan support struggle. The pandemic continues to eat away at confidence – now the British government is said to be considering extending lockdown for another 3 months beyond Easter. This is to get the second dose of vaccines to all over-50s, but just extends the pain for everyone, particularly travel stocks as it’s starting to appear as though as another peak summer season will be affected by Covid restrictions. IAG, Ryanair and EasyJet declined 6-7% in early trade. It’s lockdown ad infinitum: the government continues to act as the executive branch of the NHS. I’m reminded of a Malcolm X quote, which goes something like ‘nobody can give you freedom, you take it’.

Physical stores are not included: Boohoo is acquiring the intellectual property of Debenhams for £55m. A once-mighty high street reduced to a carcass being picked over by some of the worst in fast fashion is an ignominious end. Shares in Boohoo rose over 3% in early trade with the acquisition of the Debenhams name likely to increase the retailer’s online footprint and customer base. Meanwhile, Asos shares also climbed more than 3% as it confirmed it is talks with Arcadia over the acquisition of the Topshop, Topman, Miss Selfridge and HIIT brands. Hardly a new point, but the pandemic is accelerating the collapse in the high street and massive consolidation in the sector.

Elsewhere, the dollar is on the back foot again after staging a meek rally on Friday. GBPUSD advanced beyond 1.37 again but has yet to make a dent at the 3-year highs hit last week. Gold is reasonably steady in the middle of the recent range at $1,850 with the 50-day SMA at $1,860 acting as near-term resistance after the failure to clear the 21-day SMA at $1,875 last week. Key support converges in the $1,800-$1,820 area, with a break here calling for retest of the $1,764 lows and Fib level. Bitcoin trades higher at $33k after testing lows under $29k on Friday after a horror show of a week.

Earnings season shifts into top gear this week with several large cap tech giants reporting alongside a number of Dow components. So far, Bank earnings have been positive with trading revenues and lower provisions for bad loans boosting EPS. Meanwhile, a stunning rally for Netflix shares as net subscriber additions topping estimates for the fourth quarter drove the Nasdaq to a new record. All three major indices have hit record highs off the back of a good string of earnings and hopes for a major stimulus package from Washington.   

Apple preview

Look for Apple to beat fairly low estimates with holiday spending on the new iPhone and other devices likely to support a decent Q1. Chinese demand is holding up and shares had come into earnings season a little off the Dec peaks, though they are now at fresh records on expectations of a strong quarter. Earnings per share expected at $1.40 based on 30 analyst estimates, whilst Apple seems set to deliver its first $100bn quarter in sales. Consensus revenue estimates sit at $102.6bn, which would imply 12% year-over-year growth, the fastest in two and a half years.

Q4 earnings missed expectations but we’ve got two big firsts to look at in Q1: the first full quarter of iPhone 12 sales and Apple One subscription services. The iPhone 12 launch quarter will be probably the best for a new iPhone in several years off the back of consumer interest in 5G. On the whole, I’d expect consumer discretionary income trends to be supportive with consumers in Europe, North America and elsewhere foregoing travel/experiences for tech devices.

Look for more growth in the Services division, which expanded 16% in 2020. In addition to being the first full period reflecting iPhone 12 sales, the fiscal Q1 earnings will be the first to really test the power of the Apple One bundles. Growth in personal computer sales driven by pandemic trends such as work from/stay at home is set to boost Mac and iPad sales. I’d also anticipate strength in the Wearables, Home and Accessories division due to pandemic consumer trends.

Morgan Stanley, in a note raising its price target on the stock to $152 from $144, wrote that it is adding to positions “ahead of a likely record quarter,” as it notes likely “strength across its portfolio of Products & Services”. MS expects a “strong launch quarter” for the new iPhone 12 and continued strength from work from home trends and App store engagement. Having rerated over the last two years the stock now trades more in line with tech peers at around x33 2021 earnings. Material upside for the stock now seems more earnings dependent but EPS can continue to outperform and Services revenues can continue to support the multiple expansion that has taken place.

Tesla preview

Tesla comes into its fourth quarter earnings with a lot to live up to after the stock price exploded in the last two months. Shares have more than doubled in value from ~$400 to ~$850 since November amid a colossal momentum trade that means TSLA carries a market cap of $800bn. Revenue is expected at $10.3bn with EPS estimated at $1.01. Whilst investors are increasingly confident Tesla will continue to generate profits and free cash flow is going to improve, justifying these kind of valuation multiples is tough and will depend on a lot more than vehicle sales – ongoing software subscription revenue streams – some of which are potentially 100% margin – will be key.

Earlier this month, Tesla reported Q4 deliveries hit 180,750 units, which brought 2020 total deliveries to 500k, exceeding some rather conservative estimates by analysts and hitting Elon Musk’s target. Meanwhile, reports indicated that Tesla has commenced deliveries of its locally-made Model Y crossover in China. Investors will be looking at guidance on deliveries for 2021 – current consensus envisages ~50% growth to 780,000 units. Tesla also announced an equity distribution agreement to sell up to $5bn in common stock in future through an ‘at the market’ programme. Tesla did something similar in September this latest announcement suggests the company will continue to use its high share price to raise fresh capital via low-cost equity offerings to fund growth in a kind of virtuous circle.

However, traditional OEMs are catching up. We note the recent rallies for Ford and GM as EV enthusiasm among the old-world carmakers picks up. And market share remains a problem for Tesla – its Model 3 was the fourth-best selling pure EV in Europe in November, with Renault, VW and Hyundai outstripping the company for sales in the continent. November saw a 198% rise in hybrid and pure EV registrations vs a 14% decline overall for new car registrations. But while the market is expanding, local OEMs are holding the line against Tesla despite all the hype.

US earnings Calendar

Mon 25 JanTue 26 JanWed 27 JanThu 28 JanFri 29 Jan
 3M Co (MMM)AT&T (T)Mastercard (MA)Caterpillar Inc (CAT)
 American Express (AXP)Automatic Data Processing (ADP)McDonald’s Corp (MCD)Chevron (CVX)
 General Electric (GE)Boeing (BA)Mondelez (MDLZ) 
 Johnson & Johnson (JNJ)Apple Inc (AAPL)Visa Inc (V) 
 Verizon Communications Inc (VZ)Facebook (FB)  
 Advanced Micro Devices (AMD)Tesla Inc (TSLA)  
 Microsoft Corp (MSFT)   
 Starbucks Corp (SBUX)   

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