Rising Rates and Inflation Diminish Solid Earnings

TradeTheNews.com Weekly Market Update: Rising Rates and Inflation Diminish Solid Earnings
Fri, 27 Apr 2018 16:19 PM EST

Stocks opened the week with less than enthusiastic responses to a deluge of Q1 earnings reports. Significant top and bottom line growth for many key Dow and S&P components along with improving outlooks were mostly overlooked, and hand wringing over rising raw material costs and potentially peaking margins moved to the forefront of some traders’ minds. Also the US 10-year yield finally broke above 3% providing potential competition for marginal investment dollars as well. The US Dollar Index climbed to nearly the best levels of the year helped by the back up on US Treasury yields and relatively softer European data.

By the second half of the week investors were reacting decidedly more positive to key tech earnings in particular, driving money back into the FANGs and indices in general. Treasury rates backed off as well, after the ECB stayed the course while slightly downgrading their growth depiction. Economic data on both sides of the pond, particularly in Europe, continued to come up short of expectations before US Q1 GDP topped estimates on Friday. Nevertheless US yields slipped into week’s end tracking yields in Europe as well as responding to very hopeful images coming from the Korean Peninsula. Copper prices dropped back to the 200-day moving average and oil prices drifted lower. For the week, the S&P500 was about flat, the DJIA dropped 0.6%, and the Nasdaq fell 0.4%.

The pace of quarterly earnings reports accelerated this week and corporate commentary greatly influenced the direction of the stock market. Caterpillar executives blunted a rally in industrials on Tuesday as they declared that the company’s strong Q1 results would be the “high water mark” for the year. Boeing staunched the bleeding on Wednesday with an uplifting report, easily beating quarterly estimates and raising its guidance despite the specter of a Chinese trade dispute. Facebook led the tech sector higher on Thursday after it posted solid results that threw off concerns about privacy issues destroying its business model. Amazon posted a stellar quarter, crowing about its growing ad business and continued strength in AWS, and announced a 20% price increase for its Prime services.


MONDAY 4/23
UBSG.CH Reports Q1 (CHF) Net 1.51B v 1.38Be, adj Pretax 1.97B v 1.85Be, Rev 7.70B v 7.64Be
(FR) FRANCE APR PRELIMINARY MANUFACTURING PMI: 53.4 V 53.5E (19th month of expansion but lowest since Mar 2017)
*(DE) GERMANY APR PRELIMINARY MANUFACTURING PMI: 58.1 V 57.5E (40th month of expansion)
(EU) EURO ZONE APRIL PRELIMINARY MANUFACTURING PMI: 56.0 V 56.1E (57th month of expansion but lowest since Feb 2017)
(US) APR PRELIMINARY MARKIT MANUFACTURING PMI: 56.5 V 55.2E
GOOGL Reports Q1 adj $9.93* (ex $3.40 accounting adj) v $9.21e, Rev $24.9B (ex $6.29B TAC) v $24.2Be
CAT Reports Mar dealer statistics: Total Machines +26% y/y

TUESDAY 4/24
SAN.ES Reports Q1 Net €2.05B v €2.0Be, Rev €12.15B v €12.0B y/y
SAP.DE Reports Q1 Non-IFRS Net €708M v €887M y/y, non-IFRS Op €1.24B v €1.2Be, Rev €5.26B v €5.31Be
(FR) FRANCE APR BUSINESS CONFIDENCE: 108 V 108E; MANUFACTURING CONFIDENCE: 109 V 110E
(DE) GERMANY APR IFO BUSINESS CLIMATE: 102.1 V 102.8E; CURRENT ASSESSMENT: 105.7 V 106.0E
GLW Reports Q1 $0.31 v $0.30e, Rev $2.50B v $2.51Be
CAT Reports Q1 $2.82 adj v $2.11e, Rev $12.9B v $11.6Be
LMT Reports Q1 $4.02 v $3.41e, Rev $11.6B v $11.3Be
FCX Reports Q1 $0.46 v $0.58e, Rev $4.87B v $4.76Be
MMM Reduction of high end eps range largely reflection of trimming of organic growth expectations - conf call
US 10-year Treasury yield hits 3% for the first time since January 2014
(US) APR RICHMOND FED MANUFACTURING INDEX: -3 V 16E
(US) MAR NEW HOME SALES: 694K V 630KE
*(US) APR CONSUMER CONFIDENCE: 128.7 V 126.0E
CAT Expect Q1 to be the high water mark for the year - earnings call comments
(US) TREASURY SELLS $32B IN 2-YEAR NOTE AUCTION; DRAWS 2.498%; BID-TO-COVER RATIO: 2.61 V 2.91 PRIOR AND 2.87 AVG OVER THE LAST 12 (lowest BTC since Dec)
TXN Reports Q1 $1.35 v $1.11e, Rev $3.79B v $3.65Be

WEDNESDAY 4/25
CSGN.CH Reports Q1 (CHF) Net 694M v 596M y/y, adj Pretax 1.21B v 1.10Be, Rev 5.64B v 5.53B y/y
LLOY.UK Reports Q1 Net £1.15B v £890M y/y, Underlying profit £2.0B v £2.08B y/y, Rev £4.58B v £4.41B y/y; affirms targets
TWTR Reports Q1 $0.16 v $0.12e, Rev $664.9M v $609Me
FB Reports Q1 $1.69 v $1.36e, Rev $12.0B v $11.5Be
V Reports Q2 $1.11 v $1.01e, Rev $5.10B v $4.78Be; Raises FY18 guidance
F Reports Q1 $0.43 v $0.41e, Rev $39B v $37.0Be
005930.KR Reports Final Q1 (KRW) Net 11.6T v 11Te; Op 15.64B v 15.6B prelim; Rev 60.56T v 60.0T prelim

THURSDAY 4/26
ROG.CH Reports Q1 (CHF) Rev 13.6B v 13.3Be
NOKIA.FI Reports Q1 adj €0.02 v €0.02e, adj Op €239M v €341M y/y, Rev €4.93B v €5.14Be
DBK.DE Reports Q1 Net €120M v €575M y/y, Pretax €432M v €878M y/y, Rev €6.98B v €7.27Be
ORA.FR Reports Q1 EBITDA €2.6B v €2.6Be, Rev €10.1B v €10.1Be
066570.KR Reports final Q1 (KRW) Net 730B v 500Be; Op 1.1T v 1.1Te; Rev 15.1T v 15.1Te; Confirms to acquire 70% stake in ZKW for KRW1.0T
(DE) GERMANY MAY GFK CONSUMER CONFIDENCE: 10.8 V 10.8E
RDSA.NL Reports Q1 adj Net $5.32B v $5.20Be, basic CCS EPS $0.69 v $1.24e, Rev $89.2B v $81.0Be
BARC.UK Reports Q1 Net £1.17B v £209M y/y, adj Pretax (ex litigation) £1.73B v £1.71B y/y, Core Net Rev £5.36B v £5.60Be
VOW3.DE Reports Q1 adj Net €3.30B v €3.37B y/y, Op €4.21B v €4.38Be, Rev €58.2B v €58.4Be
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED -0.50%; AS EXPECTED; pushes back its 1st potential rate hike by a few months
GM Reports Q1 $1.43 v $1.22e, Rev $36.1B v $34.1Be
UPS Reports Q1 $1.55 v $1.54e, Rev $17.1B v $16.4Be
(US) MAR PRELIMINARY DURABLE GOODS ORDERS: 2.6% V 1.6%E; DURABLES EX-TRANSPORTATION: 0.0% V 0.5%E
(EU) ECB’s Draghi: Reiterates view that rates will remain low well past the end of bond buying; inflation will converge towards target - prepared remarks
(EU) ECB’s Draghi: Did not discuss monetary policy per se; confidence in inflation is unchanged - Q&A
AMZN Reports Q1 $1.48 v $1.22e, Rev $51B v $50.2Be
MSFT Reports Q3 $0.95 v $0.85e, Rev $26.8B v $25.7Be
BIDU Reports Q1 $2.60 v $1.73e, Rev $3.33B v $3.26Be
*(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%, AS EXPECTED
(JP) BOJ Quarterly Outlook for Economic Activity and Prices: Removes wording on reaching 2% inflation target around FY19/20
(KR) South Korea President’s Office Official: Confirms North Korea leader Kim said he would visit South Korea’s presidential house at any time

FRIDAY 4/27
AIR.FR Reports Q1 adj EBIT €14M v loss €15.7Me, Rev €10.0B v €9.80Be
(FR) FRANCE Q1 ADVANCE GDP Q/Q: 0.3% V 0.4%E; Y/Y: 2.1% V 2.3%E
SAN.FR Reports Q1 Business EPS €1.28 v €1.17e, Business Net €1.60B v €1.79B y/y, Rev €7.90B v €8.65B y/y; starts share €1.5B buyback
RBS.UK Reports Q1 Net £884M v £386M y/y, Adj Op £1.29B v £759M y/y, Rev £3.30B v £3.06B y/y
(DE) GERMANY APR UNEMPLOYMENT CHANGE: -7K V -15KE; UNEMPLOYMENT CLAIMS RATE: 5.3% V 5.3%E
(UK) Q1 ADVANCE GDP Q/Q: 0.1% V 0.3%E; Y/Y: 1.2% V 1.4%E (slowest annual pace since 2012)
(KR) Two Koreas agree to end 7-decade war and pursue complete denuclearization
3988.HK Reports Q1 (CNY) Net 49B v 46.6B y/y, Op Income 126.1B v 129.5B y/y
(EU) EURO ZONE APR BUSINESS CLIMATE INDICATOR: 1.35 V 1.28E; CONSUMER CONFIDENCE(FINAL): 0.4 V 0.4E
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES KEY 1-WEEK AUCTION RATE UNCHANGED AT 7.25%; AS EXPECTED
(US) Q1 ADVANCE GDP ANNUALIZED Q/Q: 2.3% V 2.0%E; PERSONAL CONSUMPTION: 1.1% V 1.1%E
(US) Q1 ADVANCE GDP PRICE INDEX: 2.0% V 2.2%E; CORE PCE Q/Q: 2.5% V 2.5%E
(US) APR FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 98.8 V 98.0E