Weekly Market Update: Markets brace for a bumpy ride in the next few weeks
Fri, 23 Oct 04:10 PM EST/09:10 PM GMT
The week began with some renewed optimism related to US fiscal stimulus talks causing stocks to be bid up. The Russell 2000 exhibited relative strength as the week progressed while the Nasdaq lagged. Earnings season continued on with nearly a quarter of the S&P500 reporting. Revenue and earnings beats remained largely the norm, but investors focused more on exogenous factors like the disjointed US fiscal stimulus talks, the growing 2nd and 3rd waves of the coronavirus pandemic and the upcoming US election. Thursday night saw the final presidential debate, but 50M voters have already cast their ballots early, diminishing any impact of the debate. Ultimately the chances of a fiscal stimulus deal being enacted before the November election appeared nonexistent, despite the rhetoric from both sides about inching closer. Amid those diminished prospects and new daily highs for Covid-19 infection rates across Europe and in various states here, US stocks moved modestly lower.
September housing starts saw good growth in the single family segment, while the NAHB housing market index hit a new record high and September US existing homes sales reached the highest level since 2006. US rates backed up with Treasury yields traded up to levels not seen since early June. The curve stepped as well with the 2-10 year spread approaching 80 bps. The Euro rose following record investor demand for the EU’s first issuance of social bonds and on news Brexit negotiations will resume with the aim of reaching a deal next month. Bitcoin jumped to fresh one-year highs alongside strength in precious metals after PayPal announced a new service enabling users to buy, hold, and sell cryptocurrency. For the week, the S&P slipped 0.5%, the DJIA lost 0.9%, and the Nasdaq was down 1.1%.
In corporate news this week, tech earnings season kicked off on a sour note, as Intel and Netflix both were routed after reporting their quarterly results. Intel posted a surprise drop in its data center group and saw margins contract amid the move to cheaper chips. Netflix missed expectations broadly as its subscriber growth slowed again. IBM cloud growth disappointed as the tech giant notched its lowest quarterly revenue in over 20 years. Enthusiasm for Tesla was reinvigorated following strong Q3 results and a plethora of analyst upgrades. Snap reported a surprise profit, with its revenue easily topping forecasts, helped by a surprise jump in ad dollars. The Justice Department filed an antitrust lawsuit against Google in federal court, joined by 11 Republican state attorneys general, accusing the search provider of locking up deals with mega-cap partners like Apple and limiting overall competition. In a flurry of M&A in the Permian Basin, ConocoPhillips announced it would buy Concho Resources and Parsley Energy agreed to be acquired by Pioneer Natural Resources, both in all-stock deals.
SUN 10/18 *(CN) CHINA Q3 GDP Q/Q: 2.7% V 3.3%E; Y/Y: 4.9% V 5.5%E
MON 10/19 CXO ConocoPhillips confirms acquisition of Concho Resources in all-stock transaction for a fixed ratio of 1.46shrs of CP common stock (enterprise valued at ~$60B) *(US) OCT NAHB HOUSING MARKET INDEX: 85 V 83E (highest on record) INTC Reportedly close to deal to divest NAND memory chip unit to SK Hynix in potential $10B sale; could be finalized by Monday - press IBM Reports Q3 $2.58 adj v $2.55e, Rev $17.6B v $17.6Be BHP.AU Reports Q1 Waio Iron Ore Production: 74Mt v 69Mt y/y, Copper Production 413 Kt v 394Kte INTC Hynix confirms to purchase Intel's NAND flash-memory manufacturing business for KRW10.3T (~$9.0B) in all cash transaction (the transaction was speculated to be $10.0B)
TUES 10/20 (US) NY Fed Head of Markets Group Singh: In scenario of significant market stress, Fed could buy both bonds and ETFs AZN Reportedly Covid-19 trial in the US to resume this week following review by the FDA of a serious illness - press GOOGL DOJ confirms filing antitrust suit against Google in federal court today on search market dominance, joined by 11 state AGs CP Reports Q3 C$4.12 v C$4.22e, Rev C$1.86B v C$1.87Be *(US) SEPT HOUSING STARTS: 1.42M V 1.47ME; BUILDING PERMITS: 1.55M V 1.520ME PG Reports Q1 $1.37 v $1.43e, Rev $19.3B v $18.3Be; Raises FY21 buyback view by $1B (0.2% of market cap) UBSG.CH Reports Q3 Net $2.1B v $1.56Be y/y; Rev $8.94B v $7.73Be, To propose cash dividend in Apr 2021
WEDS 10/21 *(UK) SEPT CPI M/M: 0.4% V 0.5%E; Y/Y: 0.5% V 0.6%E (UK) EU Brexit Negotiator Barnier: Reiterates that EU stance on Brexit will not change; to continue to look for a deal but it must reflect a balance compromised VZ Reports Q3 $1.25 v $1.22e, Rev $31.5B v $31.6Be PYPL Launches new service enabling users to Buy, Hold and Sell Cryptocurrency VZ CFO: expect to see cost cuts beyond $10B - earnings call comments *(US) DOE CRUDE: -1.0M V -1ME; GASOLINE: +1.9M V -1.5ME; DISTILLATE: -3.8M V -1.5ME; Utilization: 72.9% v 75.8%e (US) Association of American Railroads weekly rail traffic report for week ending Oct 17th: 518.8K, +2.2% y/y *(US) FEDERAL RESERVE BEIGE BOOK: ECONOMIC ACTIVITY CONTINUED TO INCREASE ACROSS ALL DISTRICTS, WITH THE PACE OF GROWTH CHARACTERIZED AS SLIGHT TO MODEST IN MOST DISTRICTS
THURS 10/22 KO Reports Q3 $0.55 v $0.45e, Rev $8.7B v $8.35Be *(US) INITIAL JOBLESS CLAIMS: 787K V 870KE; CONTINUING CLAIMS: 8.37M V 9.63ME *(US) SEPT EXISTING HOME SALES: 6.54M V 6.30ME (highest level since 2006) *(US) SEPT LEADING INDEX: 0.7% V 0.6%E CNX Reportedly EQT Corp is seeking to acquire CNX - press INTC Reports Q3 $1.11 v $1.10e, Rev $18.3B v $18.2Be; To complete $2.4B share buyback when market stabilizes
FRI 10/23 DAI.DE Reports final Q3 Net €2.18B v €1.81B y/y; adj EBIT €3.48B v €3.48B prelim; Rev €40.3B v €43.3B y/y *(UK) SEPT RETAIL SALES (EX-AUTO/FUEL) M/M: 1.6% V 0.5%E; Y/Y: % V 5.0%E *(FR) FRANCE OCT PRELIMINARY MANUFACTURING PMI: 51.0 V 51.0E (2nd month of expansion) *(DE) GERMANY OCT PRELIMINARY MANUFACTURING PMI: 58.0 V 55.0E (4th straight expansion and highest reading since Apr 2018) *(EU) EURO ZONE OCT PRELIMINARY MANUFACTURING PMI: 54.4 V 53.0E (4th month of expansion and highest reading since Aug 2018) *(UK) OCT PRELIMINARY MANUFACTURING PMI: 53.3 V 53.1E (5th straight expansion) - (LY) Libya National Oil Company says force majeure lifted on Ras Lanuf and Es Sider ports AZNFDA reportedly allowing resumption of US Phase 3 trial for AstraZeneca COVID-19 vaccine – press JNJCovid-19 vaccine trial said to resume shortly - press BAFAA determines a 2019 software fix for several Boeing 747 passenger and cargo planes was inadequate; Boeing to develop a new fix; faulty software did not result in any accidents - press