INSIGHTS

Stefano Sciacca

Fri, Oct 25


Positive Earnings Lifting Equities…Macro Still Mixed

In what has been a busy week, corporate earnings yelled one single clear message: The economy is still holding up. Having, seen many big corporations reporting over the past two weeks, the season started as usual with the big banks, which reported a solid credit market despite tightening Net Interest Income due to the lower Fed Funds rate. Bank of America, JPMorgan, UBS, Citigroup all reporting encouraging EPS growth, while GS still lags due to mainly its underperforming Investment & Lending Division. Jamie Dimon, CEO of JPM, during the usual earnings conference call reassured the sell-side analysts, who generally reported a very bearish sentiment from their buy-side counterparties, claiming that consumers are still spending, and this will continue to fuel the US economy despite the US-China dispute weighs on corporate sentiment.

 

 

Moving on with industrials, Caterpillar reported disappointing earnings, with the stock plummeting post-release, whilst Tesla, Harley Davidson and United Technologies posted expectation beating results. McDonald’s and Hasbro struggled, while Procter and Gamble thrived. Is it worth positioning on Value stocks? On the same page, Disney and Verizon both edged higher after the Telco giant announced to concede a 12-months free Disney+ Membership for its new unlimited Home Internet and 5G subscribers. To conclude the earnings wrap-up, Biogen after earnings release announced a new regulatory filing for Aducanumab, a new drug to reduce clinical decline in patients with early Alzheimer’s disease. The stock climbed more than 36% intraday, adding circa $10bn in Market Capitalisation.

On the Macro-side, Thursday has been “the day”. France, Germany and the Eurozone Manufacturing PMIs all came up in-line with expectations, highlighting what we already knew: Germany is not anymore, the European manufacturing engine. Mario Draghi held his last media press conference, announcing no further rate cuts for the time being, although he once-again reaffirmed “concerning economic slowdown, downside risk and muted inflation pressure”. During his 8 years mandate, the Euro area emerged from a period of sovereign debt crisis and saw unemployment drop to 7.4% (the lowest since May 2008). On the other side of the coin, unlike Yellen or Powell, he was never able to raise rates during his term, instead he widened up the wealth divide (which is now the highest in Europe history) by pumping up more liquidity into the financial system as he fought one crisis after another.

 

 

The market, remains bereft of volatility, with the S&P 500 failing to amount a sustained break above the key 3000 resistance level. UBS just released their update global investor sentiment survey results, which highlighted how active managers still remain high in cash holdings amid global economy pessimism and hopes of a market correction.

 

 

 

 Next week our macro spotlight will be on?

 

Monday:

  • Loan Growth – Eurozone
  • Chicago Fed National Activity Index - US
  • Wholesale Inventory – US
  • Dallas Fed Manufacturing Index - US

Tuesday:

  • Tokyo Core CPI – Japan
  • Import Prices – Germany
  • BoE Consumer Credit – UK
  • Redbook – US
  • Pending Home Sales – US
  • CB Consumer Confidence – US
  • S&P Home Price Index - US

Wednesday:

  • Retail Sales – Japan
  • Inflation Rate – Australia
  • Household Consumption – France
  • Consumer/Business Confidence – Italy
  • Economic, Industrial, Service Sentiment – Eurozone
  • Consumer Confidence – Eurozone
  • GDP Growth Rate – US
  • Inflation Rate – Germany
  • Fed Interest Rate Decision

 

Thursday:

  • Industrial Production – Japan
  • Gfk Consumer Confidence – UK
  • NBS Manufacturing Index – China
  • Unemployment Rate – Italy
  • Unemployment Rate – Eurozone
  • GDP Growth Rate – Eurozone
  • Personal Income & Spending – US
  • Continuing Jobless Claims – US
  • Initial Jobless Claims – US
  • Chicago PMI – US

Friday:

  • Caixin Manufacturing PMI – China
  • Non-Farm Payrolls – US
  • Unemployment Rate – US
  • Markit Manufacturing PMI – US
  • ISM Manufacturing PMI - US

 

Chart of the week

 

 

Fact of the week

 

Amazon stock price slumped about 7 percent after market hours as the tech giant reported its first profit drop in two years amid AWS miss and overall slowest revenue growth rate since 2001.

 

Quote of the week

 

“The incoming data since the last governing council meeting in early September confirm our previous assessment of a protracted weakness in the euro area growth dynamics, the persistence of prominent downside risk and muted inflation pressure”

Mario Draghi, ECB Governor during his last press conference last Thursday

 


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