Weekly Market Update: Realities of earnings reports and dollar weakness drive divergences in markets this week
It was another busy week with earnings season shifting into a higher gear and rising US China tensions exhibited in a series of tit for tat announcements by each side. Several high profile, high-flying technology names moved lower despite delivering strong quarterly results. Weekly US Initial jobless claims climbed for the first time since March, with another staggering 1.4M people filing for the first time. A theme of a softening US dollar and firming commodity prices gained momentum as the week progressed with chartists highlighting significant breakouts in the Euro, gold and silver. European data surpassed expectations, potentially highlighting diverging prospects to that of the US economy as it deals with continued rising infection rates in the South and West. Those varying potential pathways were further illustrated by EU leaders ability to reach an agreement on the €750B recovery fund while Republicans in Washington were unable to produce a formal relief package for debate, delaying their opening proposal to next week with just days left until the prior stimulus package expires. Interest rates continued to drift lower amid the murky US economic landscape and the prospect of this ‘fiscal cliff’ at the end of the month. For the week the S&P slipped 0.3%, the DJIA dropped 0.8%, and the Nasdaq was down 1.3%.
In corporate news this week, amid tensions between China and the European Union, Beijing said it may consider export controls on Nokia and Ericsson products if the EU takes action against Chinese suppliers. The much-ballyhooed release of coronavirus vaccine data from AstraZeneca in The Lancet disappointed the street despite showing ‘robust immune responses in all participants’ in its Phase I/II trial. IBM posted an earnings beat in Q2 as cloud revenues rose though analysts pointed to underperformance in some high-margin areas. Microsoft profits came ahead of consensus but a perceived slowdown in Azure growth worried some on the Street. Intel shares plummeted despite reporting Q2 above consensus after disclosing production issues would delay its next-generation 7-nanometer product launch. The FAA released an emergency directive about Boeing 737s in storage after inspectors found compromised air check valves, a discovery which could affect over 2,000 aircraft. Chevron announced the takeover of Houston-based independent driller Noble Energy for $13B, a move that could portend a wave of consolidations amid a volatile oil market.
7/19 SUN (CN) China Banking and Insurance Regulatory Commission (CBIRC) raised the equity investment cap for insurance cos to 45% of total assets from 30% currently; Regulator also pledged to offer more support to areas impacted by floods - financial press
7/20 MON NBL Confirms to be acquired by Chevron for $10.38/shr in all stock transaction valued at ~$5B ERICB.SE Reportedly China could consider export controls on Nokia, Ericsson products; China to only follow through if EU members take action against Chinese suppliers - press AZN.UK AstraZeneca-Oxford coronavirus vaccine study of AZD1222 shows good antibody, T-cell response; not anticipated to impact the Company's FY20 financial guidance IBM Reports Q2 $2.18 v $2.14e, Rev $18.1B v $17.7Be BHP.AU Reports Q4 Waio Iron Ore Production: 75.6Mt v 71.0Mt y/y, Attributable Iron Ore Production: 66.7Mt v 62.6Mt y/y *(EU) EU LEADER SUMMIT REACHES AGREEMENT ON €750B RECOVERY FUND
7/21 TUES UBSG.CH Reports Q2 Net $1.2B v $1.3B y/y, Adj Pretax $1.6B v $1.8B y/y; Rev $7.4B v $7.53B y/y; Premature to issue FY20 guidance; may resume share repurchases in Q4 KO Reports Q2 $0.42 v $0.40e, Rev $7.26B v $7.15Be FE Ohio Speaker of the House arrested on bribery charges; probe said to focus on bailout of FirstEnergy nuclear plants - press EUR/USD Pair trades through March 9th high to levels not seen since Jan 2019 (approaching 1.15) Gold probes higher to levels not seen since Dec 2012; silver posting multiyear highs TXN Reports Q2 $1.48 v $0.88e, Rev $3.24B v $2.96Be UAL Reports Q2 -$9.31 v -$9.13e, Rev $1.48B v $1.22Be; Will materially reduce cash burn in Q3 FE Received subpoenas in connection with Ohio House Bill 6 investigation: reviewing details of probe and intend to fully cooperate (US) EPA to propose carbon dioxide limits on airplanes for first time - press (US) President Trump: virus will probably get worse before it gets better; outbreak seems to be largely in the Sun Belt, but it could spread - coronavirus briefing (US) China extends anti dumping probe into certain US chemicals for an additional 6 months, probe relates to n-Propanol; cites the 'complexity' of the case - Press
7/22 WEDS CP Reports Q2 C$4.07 v C$3.64e, Rev C$1.79B v C$1.73Be *(US) DOE CRUDE: +4.9M V -1ME; GASOLINE: -1.8M V -2ME; DISTILLATE: +1.1M V 0ME MSFT Reports Q4 $1.46 v $1.38e, Rev $38.0B v $36.6Be
7/23 THURS ROG.CH Reports H1 (CHF) Core EPS 10.44 v 10.72e y/y, Core Op 11.8B v 12.4B y/y, Rev 29.3B v 30.5B y/y UNA.NL Reports H1 Net €3.5B v €3.2B y/y; Rev €25.7B v €26.1B y/y; Confirms plan to unify Group's legal structure under a single parent company (UK) EU Brexit Negotiator Barnier: Remain far apart from any agreement with UK over the future relationship with the bloc; time is running out *(US) INITIAL JOBLESS CLAIMS: 1.416M V 1.30ME (1st rise in 16 weeks, since March); CONTINUING CLAIMS: 16.20M V 17.10ME INTC Reports Q2 $1.23 v $1.11e, Rev $19.7B v $18.5Be; 7nm product launch delayed approx 12 months (US) Pres Trump: to cancel GOP convention in Jacksonville, FL; timing of a big GOP convention in Florida is not right; I have to protect the American people (CN) China Foreign Ministry confirms it will ask the US to close Chengdu (China) consulate in 72 hours - US financial press [as speculated]
7/24 FRIDAY *(UK) JUN RETAIL SALES (ex-auto/fuel) M/M: 13.5% V 7.9%E; Y/Y: +1.7% V -3.7%E VOD.UK Reports Q1 Rev €10.5B v €10.7B y/y; Service Organic Rev -1.3% v -2.1%e; Tower unit on track for IPO early 2021 in Germany *(FR) FRANCE JULY PRELIMINARY PMI MANUFACTURING: 52.0 V 53.0E (2nd straight expansion) *(DE) GERMANY JULY PRELIMINARY PMI MANUFACTURING: 50.0 V 48.0E (1st non-contraction in 19 months and highest reading since Dec 2018) *(EU) EURO ZONE JULY PRELIMINARY PMI MANUFACTURING: 51.1 V 50.1E (1st expansion in 18 months) *(UK) JULY PRELIMINARY PMI MANUFACTURING: 53.6 V 52.0E (2nd straight expansion) VZ Reports Q2 $1.18 v $1.16e, Rev $30.4B v $29.9Be XOM Collaborates with UCal on discovery of new material to enhance carbon capture technology BA FAA releases emergency directive related to 737s in storage; inspectors found compromised air check valves; could affect 2K aircraft - press (US) JULY MARKIT PRELIMINARY PMI MANUFACTURING: 51.3 V 52.0E (US) JUN NEW HOME SALES: 776K V 700KE