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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.
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|
|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|
Week Ahead: Earnings, ECB and US GDP to drive markets
The European Central Bank (ECB) provides the main headline risk event for traders as we look at whether policymakers are ready to pull the trigger on a fresh round of stimulus.Options are limited for the ECB but markets are increasingly betting it will choose to cut interest rates this year and may restart its bond-buying programme.
Estimates for US Q2 growth were revised up after better-than-expected retail sales figures last week. The question is whether there is enough strength in the quarterly growth numbers to make the market rethink just how much the Fed will cut rates. The first reading of the Q2 GDP estimate is due on Friday.
Earnings season hits full speed with a slew of corporate updates. Top of the bill is Facebook, which knocked it out the park in Q1. The consensus expected Q2 earnings per share (EPS) is $1.87, up 7.5% year-on-year. Sales are seen rising around 25% to $16.5 billion. But can advertising growth offset worries about regulation and higher costs?
Last month CEO Elon Musk said deliveries in the second quarter hit a record 95,200 cars, well ahead of the 91k expected by Wall Street. Key questions are whether achieving these production targets is leaving the business nursing additional costs, and whether management sticks to its guidance to return to profitability in Q3.
How much has the 737 MAX grounding affected sales and earnings? We should find out more about how much of a it Boeing expects to take when we get the second quarter numbers on Thursday. Boeing also has exposure to tariffs and has led to analysts downgrading the stock lately.
Earnings season continues this week so here’s your head’s up on the names to watch. The following companies are set to publish their quarterly earnings reports this week:
|Pre-Market||23rd July||Lockhead Martin Corp – Q2 Earnings|
|23rd July||Santander SA – Q2 Earnings|
|After-Market||23rd July||Visa Inc – Q2 Earnings|
|08.00 BST||23rd July||UBS – Q2 Earnings|
|After-Market||23rd July||Snap Inc -Q2 Earnings|
|Pre-Market||23rd July||Coca-Cola C – Q2 Earnings|
|After-Market (Paris)||24th July||LVMH – Q2 Earnings|
|24th July||AMD – Q2 Earning|
|12.00 BST||24th July||GlaxoSmithKline Plc -Q2 Earnings|
|After-Market||24th July||Facebook – Q2 Earnings|
|After-Market||24th July||Ford Motor Co – Q2 Earnings|
|24th July||Deutsch Bank – Q2 Earnings|
|Pre-Market||24th July||United Parcel Service – Q2 Earnigns|
|Pre-Market||24th July||Caterpillar Inc Q2 Earnings|
|After-Market||24th July||Tesla – Q2 Earnings|
|Pre-Market||24th July||AT&T Inc – Q2 Earnings|
|After-Market||25th July||Alphabet – Q2 Earnings|
|Pre-Market||25th July||Boeing Co – Q2 Earnings|
|After-Market||25th July||Starbucks Corp – Q3 Earnings|
|Pre-Market||25th Juy||Comcast – Q2 Earnings|
|07.00 BST||25th July||Unilever – Q2 Earnings|
|13.00 BST||25th July||TOTAL SA – Q2 Earnings|
|06.15 BST||26th July||Nestle – Q2 Earnings|
|Pre-Market||26th July||McDonalds Corp – Q2 Earnings|
|Pre-Market||26th July||Twitter – Q2 Earnings|
Don’t miss the expert analysis and opinion, live-streamed direct to your platform. Here are the highlights from XRay this week.
|17.00 GMT||22nd July||Blonde Markets|
|15.30 GMT||23rd July||Asset of the Day: Bullion Billions|
|19.00 GMT||23rd July||LIVE: Trader Training|
|11.45 GMT||25th July||ECB Decision LIVE|
Watch out for the biggest events on the economic calendar this week:
|From 07.15 GMT||24th July||Eurozone flash PMIs|
|13.45 GMT||24th July||US flash manufacturing PMI|
|08.00 GMT||25th July||German IFO report|
|11.45 GMT||25th July||ECB Interest Rate Decision|
|12.30 GMT||25th July||ECB Press Conference|
|12.30 GMT||26th July||US Q2 GDP first reading|
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.
Brexit compromise, dire PMIs, a lift for Facebook and a drop for Lyft
Facebook up on Deutsche Bank Instagram note, Lyft receives first “Sell” rating
Despite the negative news-flow swirling around Facebook as it battles concerns over privacy and extremist content, stock has continued to climb today, registering a 3.3% gain. A new note from Deutsche Bank states analysts believe that Friday’s addition of a Checkout on Instagram feature for the image-sharing platform could bring in revenue of $10 billion by 2021. Facebook is currently trying to move away from its reliance on ads, which currently generate 98% of revenues.
Finding alternative revenue streams is important for the company as it faces pressure to clamp down on who it is allowing to advertise, especially as the platform comes under scrutiny for the role of paid ads during elections and other political events.
At the other end of the spectrum is Lyft, which yesterday closed below $69.00; under its IPO price. The stock has been hit by its first “sell” rating. Michael Ward of Seaport Global has set a target price of $42 per share, claiming the current price represents a “leap of faith” in the willingness of consumers to forgo car ownership in favour of ride-hailing services.
Executives at rival ride-hailer Uber may not be looking forward to their upcoming float as much now. Lyft’s performance could significantly dent the price investors are willing to pay; it seems that holding a company valued at many times earnings and yet to post a profit isn’t quite the golden opportunity many first believed.
Looking at the wider markets, sentiment remains positive after fresh signs that the US and China are nearing a deal to end the months-long trade war between the world’s two largest economies. Recession fears are easing and global stocks climbed to six-month highs, while a move out of safety pushed the German ten-year yield back above 0%.
Asian shares hit a fresh seven-month-high, with the Hang Seng up 0.9% to break above the 30,000.00 handle before consolidating around 29,950.00, and the Nikkei 225 up 1.3% to flirt with 21,800.00.
European shares are also higher; the DAX has registered a 1% gain. Signs that the UK government may be moving towards a softer Brexit have helped nudge the FTSE up nearly 60 points; resistance remains around 7,400.00.
Cable caught between Brexit compromise and service sector stumble
Having exhausted all other Brexit options, Theresa May last night announced that the UK needed another short Article 50 extension, and extended an offer of talks to Labour leader Jeremy Corbyn. May still doesn’t want the UK to take part in European Elections, but wants to avoid a no-deal Brexit; currently scheduled for April 12th.
It marks a significant change in strategy, and cable responded positively. Sterling was up 0.5% against the dollar this morning, but gains were trimmed following a dire reading from the March services PMI. Analysts expected the reading to drop from 51.3 in February to 50.9, but the sector instead recorded a contractionary 48.9.
Taken together, the PMIs are waving a red flag for the UK economy. Only the manufacturing sector continues growing, and that is because of companies stockpiling ahead of Brexit.
The uncertainty facing businesses is an anchor on the UK economy, but can May and Corbyn craft a deal between them that appeases Parliament? The move certainly signals the Prime Minister is ready to consider a softer Brexit, but will anyone buy it?
During normal times, a consensus between Conservative and Labour leaders would have a strong chance of uniting the house. But we have to remember the circumstances and the leaders in question. Tories aren’t likely to vote for anything with Corbyn’s fingerprints on, while the Labour party isn’t exactly Corbyn’s biggest fan either.
Cable remains higher – a deal that potentially avoids further economic damage is clearly better than no deal that threatens even more (so markets believe). A soft patch for the economy can be overlooked if things get cleared up quickly, and hope this is the case has kept GBP/USD supported around $1.3175.