Baidu Completes Double Bottom Reversal

Chinese search engine Baidu Inc. (BIDU) reports Q3 2020 earnings after Monday’s U.S. closing bell, with analysts looking for a profit of $13.08 per-share on $27.5 billion in revenue. If met, earnings-per-share (EPS) would mark a 750% profit increase compared to the same quarter in 2019.  The stock fell more than 6% after posting mostly in-line results in August but recovered quickly and is now trading at a 10-month high.

Baidu Marketing On The Mend

Baidu’s marketing division produces 85% of total revenue, exposing price action to cyclical economic trends. That division took a hit during the first quarter shutdown but is now back on the growth track. Search inquiries and revenue driven by the hugely-popular mobile app rose 28% in Q2 2020 and double digits year-over-year, raising prospects for strong performance in coming quarters. In addition, the company expects to enhance average revenue per user (ARPU) through membership, gaming and live streaming initiatives.

Barclay’s analyst Gregory Zhao just upgraded the stock to ‘Overweight’ and raised the price target to $170, noting, “we think both the online marketing services and the new AI initiatives of Baidu Core are reaching an inflection point. Since 2Q20 its marketing division has followed the online ad industry’s recovery trend to gradually restore growth momentum. We also see substantial upside in the potential monetization through membership, gaming and live streaming to fully utilize existing traffic.

Wall Street And Technical Outlook

The stock has underperformed broad technology benchmarks in recent years, despite bullish Wall Street coverage. It’s currently rated at a ‘Strong Buy’, based upon 7 ‘Buy’ and 2 ‘Hold’ recommendations, and no analysts are recommending that shareholders close positions. Price targets currently range from a low of $130 to a Street-high $182 while the stock closed Friday’s U.S. session $14 below the median $160 target.

Baidu posted new three new highs into 2018 and entered a steep decline that hit a 7-year low in the first quarter. It spent the last 8 months working back to the January 2020 high at 147 and just completed the 100% retracement. This level marks a high volume 2019 breakdown through the 2018 low, as well at 200-week moving average resistance. A better-than-expected report and strong guidance may be needed to mount this formidable barrier.

For a look at all of today’s economic events, check out our economic calendar.

Shanghai Index Erases Earlier Gains as Baidu Posts Tepid Forecast; iQiyi Says SEC Investigating Fraud

China’s Shanghai Index erased earlier gains and is now trading lower for the session after search engine giant Baidu’s earnings report disappointed investors. Adding to the weakness was a plunge in shares of iQiyi. Baidu owns about 80.5% of iQiyi. Shares of the Netflix-style service fell after allegations of fraud by the U.S.

Early in the session, Chinese mainland shares rose with the Shanghai Composite up 0.11%, the Shenzhen Component Index up 0.81% and the Shenzhen Composite up 0.58%.

At 04:11 GMT, China’s Shanghai Index is trading 3315.45, down 5.28 or -0.16%.

China’s Baidu Posts Tepid Forecast as Ad Sales Remain under Pressure

China’s search engine giant Baidu, Inc. on Thursday forecast third-quarter revenue marginally below Wall Street estimates and warned of low visibility in business due to uncertainty from the coronavirus crisis, Reuters reported.

U.S.-listed shares of the company fell 5.5% in extended trading as investors looked past Baidu’s second-quarter profit and revenue beat.

The company expects current quarter revenue in the range of 26.3 billion Yuan to 28.7 billion Yuan, the midpoint of which is slightly below the average analyst estimate of 27.57 billion Yuan, according to IBES data from Refinitiv.

Baidu’s revenue from advertising still remains under pressure as big businesses in industries such as travel and financial services continue to pull back on ad spending.

Revenue from the company’s online marketing services, which includes search, news feeds and video apps and is a major contributor to overall sales, fell 8% to 17.7 billion Yuan in the second quarter ended June 30.

Membership revenue in Baidu’s Netflix-like streaming service, iQiyi, however, jumped 19%, arresting the total revenue decline to 1%.

Total revenue fell to 26.03 billion Yuan ($3.75 billion), edging past analysts’ estimates of 25.71 billion Yuan.

On an adjusted basis, Baidu earned 10.11 Yuan per American depository share (ADS), above expectations of 9.60 Yuan per ADS.

Chinese Netflix-Style Service iQiyi Tanks by 18% after US Regulators Investigate Fraud Allegations

Shares of Chinese streaming service iQiyi plunged in after-hours trade in the U.S. after it announced the Securities and Exchange Commission (SEC) has launched a probe into the company, CNBC reported.

The SEC investigation was prompted by a report in April from Wolfpack Research, which describes itself as an “activist research and due-diligence firm.”  In that report, Wolfpack accused iQiyi of fraud and inflating its numbers.

iQiyi said the SEC is “seeking the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller from Wolfpack Research in April 2020.”

The Netflix-style streaming giant also said it has “engaged professional advisers to conduct an internal review into certain of the key allegations” in Wolfpack’s report.

Wolfpack Research alleged iQiyi inflated its 2019 revenue by approximately 8 billion Yuan ($1.13 billion) to 13 billion Yuan ($1.98 billion) – or between 27% to 44%. Wolfpack also claimed the streaming company overstated user numbers and expenses, according to CNBC.

Shares of NASDAQ-listed iQiyi fell over 18% in extended trade but pared some of those losses. The company was down 12.36% at the end of the after-hours trade period.

For a look at all of today’s economic events, check out our economic calendar.

Markets Pull Back after Flirting with Breakouts

Perhaps it is a bit of “buy the rumor sell the fact” type of activity on the back of upticks in the preliminary PMI reading and hesitancy about pushing for what appeared to be breakouts. The MSCI Asia Pacific Index snapped a four-day advance, although India and Taiwanese shares were bought. Europe has been chopping back and forth since surging 4%+ on Monday. It is off almost 0.65% in late morning turnover in Europe.

US shares are heavy, and the early call sees the S&P 500 giving back a little more than half of yesterday’s nearly 1.7% gain. Benchmark yields are mixed, and the US 10-year is in its well-worn range around 66 bp. The dollar is higher against all the majors, while the emerging market currencies are mixed. South Africa and Turkey, which are expected to deliver 50 bp rate cuts, are seeing their currencies trade with a heavier bias.

Gold is weaker amid some profit-taking after unable to close above $1750 for the past four sessions. Support is seen near $1725. Meanwhile, July WTI is extending its rally for the sixth consecutive session as it pushes above $34 a barrel. It finished last week near $29.50.

Asia Pacific

The Japanese and Australian preliminary PMIs showed a nascent recovery in services while manufacturing remained under pressure. And this seemed to also be picked up by weakness in the latest Japanese and South Korean export figures.

First, the PMIs. In Japan, manufacturing slipped to 38.4 from 41.9, while services rose to 25.3 form 21.5. This translated into a 27.4 composite from 25.8. In Australia, the manufacturing PMI eased to 42.8 from 44.1. Services rose to 25.5 from 19.5. The composite rose to 26.4 from 21.7.

Let’s look at the trade figures next. April exports from Japan fell 21.9% year-over-year. This was in line with expectations after an 11.7% decline in March. Imports fell 7%, which was shallower than expected after a 5% decline in March. Japan recorded a JPY930 bln deficit. It is the fifth deficit in the past six months.

South Korea’s trade figures have begun improving. In the first 20 days of May, exports fell 20.3%, moderating from a 24.3% decline in April. Exports of semiconductor chips from 13.4%, while autos were off 58.6%, mobile devices fell 11.2%, and oil products were down almost 69%. In terms of destinations, exports to the US were off 27.9% and 18.4% to the EU and down 22.4% to Japan. Exports to China were off only 1.7% from a year ago.

This month’s up trendline for the dollar is seen near JPY107.35 today. It has not been below JPY107.50 today. On the upside, although frayed earlier this week, the JPY108 area still offers resistance and the 200-day moving average is near JPY108.30. The dollar has not been above JPY107.85 today, and there is a roughly $465 mln option at JPY107.69 that expires today.

The Australian dollar began the week near $0.6400 and was probing $0.6600 yesterday, the highest since early March. It found initial support today around $0.6550, and there is additional chart support by $0.6525. The PBOC set the dollar’s reference rate a little lower than the bank models suggested, but the greenback edged higher. It continues to trade in a narrow range around CNY7.10, which is the upper end of the broader two-month trading range.

Europe

A similar pattern to Australia and Japan was seen in the preliminary European PMI: namely a better showing a stronger pick up in services than manufacturing. German manufacturing PMI rose to 36.8 from 34.5, while the service PMI rose to 31.4 from 16.2. The composite was lifted to 31.4 from 17.4. In France, manufacturing rose to 40.3 from 32.5, while the service PMI rose to 29.4 from 10.2. These translate into a 30.5 composite reading compared with 11.1 in April. For the eurozone as a whole, Markit estimates the manufacturing component rose to 39.5 from 33.4, and the services PMI rose to 28.7 from 12.0. The composite sits at 30, up from 13.6.

The UK’s preliminary figures were also consistent with this broad pattern. Manufacturing PMI rose to 40.6 from 32.6, while the services PMI increased to 27.8 from 13.4. The composite is at 28.9 after a 13.8 reading in April.

The reports lend credence to the idea that worst for the regional economy is likely passed. To be clear, a sub-50 reading on the PMI shows contractions continue, but the turning of the “second derivative” is the first sign of the bottom. Moreover, many areas remained shut down in whole or part when the surveys were conducted between May 12 and May 20. This seems to set the stage for stronger readings in June.

After a couple of Bank of England members explicitly said that negative interest rates were among the policies being considered, the new Governor seemed to soften his stance. Bailey acknowledged his position had modified and that there was no need to rule out anything. Shortly before that, the UK auctioned its first note that had a negative yield.

It sold GBP3.75 bln of a three-year Gilt with an implied yield of -0.003%. The auction was oversubscribed (2.15x) but by the lowest amount in two months. The Bank of England meets again on June 18. The odds still favor an increase in asset purchases before negative rates come into play. Neither the short-sterling futures strip or the rest of the yield curve (outside the 2-3 year Gilt) are implying negative rates. Sterling has stabilized after falling by about 4.5% against the dollar in the month through the start of the week.

Banks took about 850 mln euros from the ECB’s first Pandemic Emergency Long-Term Refinance Operation. These loans were for minus 25 bp. It was disappointingly light and will likely fan speculation of easier terms perhaps as early as the June 4 ECB meeting. In terms of these long-term loans, the one to watch is the June 18 offering, which will be the first that could be at a minus 100 bp yield if specific lending criteria are met. Moreover, other such loans will be rolled into this more attractive option. It could be a trillion euro.

The euro was stopped 1/100 of a penny shy of the $1.10 level yesterday and is consolidating lower today. It spent little time above $1.0980 in Asia and eased to about $1.0950. Support is seen in the $1.0920-$1.0940 band. A break below $1.09 would disappoint the bulls.

Sterling tested a three-day low near $1.2185 today, which is about the middle of this week’s range. The high for the week was set on Tuesday, 4/100 of a cent below $1.23. The price action of both the euro and sterling is a timely reminder of the psychological significance of round numbers, and stops should be placed accordingly. Sterling rebounded toward $1.2240 in the European morning but appears set to run out of steam near there.

America

The US has stepped up its pressure on China. The rhetoric over the virus, Taiwan, the kidnapping of Panchen Lama (1995), and China’s military and economic policies has escalated in recent days. But it is not all about rhetoric. The US Senate passed a bipartisan bill yesterday that requires Chinese companies listed in the US to affirm that they are not under the control of the government.

This could impact large Chinese companies, like Alibaba and Baidu, both of whom sold off late yesterday in response to the bill. A separate bill that authorizes the President to levy sanctions on individuals for the mistreat of minorities in China is also progressing through the legislative process. Soon, the US Treasury report on the currency market is expected, and more importantly, the US State Department has to affirm that Hong Kong remains autonomous, or the SAR will lose its special trade privileges with the US.

The US reports the weekly jobless claims, which are expected to have remained elevated at over 2 mln. The Philadelphia Fed survey for May (expected rise to around -40 from -56.6) and the preliminary PMI (both manufacturing and services are expected to increase and lift the composite from the 27.0 reading in April) are the highlights. The April index of Leading Economic Indicators and existing home sales are overshadowed by May data. Canada and Mexico have light calendars today, but both report March retail sales tomorrow.

The US sold 20-year bonds for the first time since 1986 yesterday. It paid 1.22% to borrow $20 bln. The bid-cover was 2.53, and indirect bidders, which include foreign central banks and some asset managers, took almost 61%. There is not much available in that duration area, and what there is the Federal Reserve appears to have bought nearly to their 70% individual issue cap.

Separately, the FOMC minutes from last month’s meeting were published, and little new ground was unearthed. There seemed to be an agreement that if things got worse, apparently from their base case for a recovery in H2, more fiscal stimulus was needed, and there was more than the Fed could do. Yield curve control remains a possibility. No official discussion of negative interest rates was recorded. The possibility of tweaking interest on reserves, which some, including myself, played up, seems less likely now. The Fed reported that there was little concern that the fed funds rate would fall below target.

The US dollar is trading within yesterday’s range against the Canadian dollar, which was inside Tuesday’s range. The CAD1.3900-CAD1.3950 range so far today is likely to be extended, and the intraday technical readings suggest higher. The recent price action reinforced the lower end of the six-week range near CAD1.3850. A move above CAD1.4000-CAD1.4020 is needed to lift the greenback’s tone. The US dollar finished last week a little above CAD1.4100.

The greenback fell 1.8% against the Mexican peso yesterday, the third consecutive decline, and the most in roughly three weeks. It found support just above MXN23.00, the dollar’s lowest level since late March. A push above MXN23.30 now would suggest a near-term low is in place with the next resistance near MXN23.50.

This article was written by Marc Chandler, MarctoMarket.

What To Expect Ahead of A Busy Earnings Week?

Major U.S Benchmark indices finished the week on the red as investors reacted to mixed earnings reports. Alphabet Inc. (NASDAQ: GOOGL) and Amazon.com, Inc. (NASDAQ: AMZN) led the foray in beating earnings estimates as Facebook, Inc. (NASDAQ: FB) Imploded on missing estimates and providing guidance that fell short of expectations.

It yet again promises to be a busy week as a string of high profile companies is expected to post their quarterly earnings results.

Earnings Report expectations

Apple Inc. (NASDAQ: AAPL)

In the wake of Google and Amazon beating estimates, focus this week shifts towards Apple Inc. (NASDAQ: AAPL) given the amount of market cap it commands. The iPhone maker is to post its second earnings report after market close on July 31, 2018.  Analysts expect the company to post revenue of $61.14 billion representing a 15% year-over-year increase. Earnings per share, on the other hand, are projected at $2.16 a share.

Wall Street will also pay close attention to the number of iPhones the company sold in the second quarter, after a disappointing first quarter whereby unit sales rose by only 1.5 million. In the March quarter, service revenue rose 31% to $9.19 billion thereby helping the company beat sales and EPS expectations.

For the June quarter, Wall Street expects service revenue to come in at $9.21 billion representing a 21% increase. Investors will also pay close attention to other products sales made up of headphones, Apple TV Set-tops, as well as Apple Watch. Expectations are that the company will report a 34% increase in revenues in this segment at $3.68 billion.

Tesla Inc. (NASDAQ: TSLA)

Tesla Inc. (NASDAQ: TSLA) needs to post stellar second-quarter earnings report to avert a further implosion of the stock. After initially rising to highs of $373 a share, the stock has come down tumbling to below the $300 share mark.

Tesla reports on August 1, 2018, having achieved a significant milestone in the production of 5,000 Model 3s, a week. However, the company is expected to report a net loss of $3.49 a share. Investors will focus their attention on the number of Model 3 units the company delivered in the quarter.

The expectation is high that the company did deliver 10,000 more units in Q2 compared to Q1. Revenue, on the other hand, is expected at $4 billion on the sale of the additional cars. Attention will also be on the company’s expenditure, a headwind that has clobbered the company for years preventing it from turning in a profit.

Q3 Guidance will also have to come overboard to prevent further slide of the stock. Given that the company has hit 5,000 a week production milestone investors expect the company to provide a pathway to profitability in Q3.

Caterpillar Inc. (NYSE: CAT)

Caterpillar Inc. (NYSE: CAT) will report its earnings report on July 30, 2018, before the earnings bell. After delivering a 120% year-over-year improvement in earnings in Q1, expectations are high that the trajectory continued in Q2.  Investors expect the company to report a 22% increase in total sales, projected at $13.8 billion.

Earnings per share, on the other hand, should tickle in at $2.66 a share, representing a 79% year-over-year increase. The earnings beat is what Caterpillar needs if the stock is to bounce back after underperforming the market in the first half of the year.

Loews Corporation (NYSE: L)

Just like Caterpillar, Loews Corporation (NYSE: L) is scheduled to report on July 30, 2018, before the market opens. In Q1, the company reported a 14% surprise earnings beat. Expectations are high that the company beat estimates in Q2 on the strong performance of its CAN financials and Loews Hotels units Consensus estimates indicate the company could post earnings of 0.73 cents a share representing 3.9% year-over-year decrease.

AK Steel Holding Corporation (NYSE: AKS)

AK Steel Holding Corporation (NYSE: AKS) will report earnings on July 30, 2018, with expectations high that the company will beat estimates. The stock has already broken out of a critical resistance level in the wake of other steel companies reporting stellar quarterly financial results.

The consensus forecast for the quarter is that the company will report earnings of 23 cents a share, an increase from 19 cents a share reported a year earlier. Steel stocks are expected to continue powering high, the sector has emerged as a bright spot in the economy.

Procter & Gamble Co (NYSE: PG)

The owner of blockbuster brands like Gillett Razors and Pampers Diapers, Procter & Gamble Co (NYSE: PG) is to report its fourth-quarter and full year financial results on July 31, 2018. At the start of the year, the company forecasted organic sales gains of 2.5% up from an initial estimate of 2%.

For the current quarter, Wall Street expects the company to report revenues of $16.55 billion. Full-year sales, on the other hand, are expected at $66.87 billion. Investors will also want to hear what the company is doing as part of its cost-cutting drive. Cost cuts are expected to allow the company to venture into other growth areas.

Pfizer Inc. (NYSE: PFE)

Pharmaceutical giant Pfizer Inc. (NYSE: PFE) is to report its second-quarter earnings report before market open on July 31, 2018. The focus will be on whether the company maintained the positive earning streak in the quarter, after a positive earnings surprise of 4.05% in Q1.

Consensus estimates indicate the company could report EPS of $0.74 a share on revenues of $13.31 billion.

DowDuPont Inc. (NYSE: DWDP)

DowDuPont Inc. (NYSE: DWDP) is to report its recent quarterly earnings on August 2, 2018, before market open. Last year same quarter, the company reported earnings per share of $1.12, beating analyst’s expectations of $1.1 share. For the current quarter, investors expect the company to post EPS of $1.3 a share. Revenues, on the other hand, should come in at $23.6 billion.

Baidu Inc. (ADR) (NASDAQ: BIDU)

Investor’s sentiments are high on Chinese internet giant Baidu Inc. (ADR) (NASDAQ: BIDU) posting impressive quarterly results after the market close on July 31, 2018. Consensus estimates indicate the company could post a 30.2% year over year increase in sales that could come in at $4.01 billion. For the full year, the search giant is expected to post sales of $16.09 billion. Analysts expect the company to issue a sales guidance of $19.46 billion for next year.

Sprint Corp (NYSE: S)

Sprint Corp (NYSE: S) is to report its Q1 financial results on July 30, 2018. Wall Street expects the company to report earnings per share of $0.01 a share compared to $0.05 reported last year. Total revenue is poised to decline 0.7% year over year to $8.1 billion.

Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA)

Teva Pharmaceutical Industries Ltd (ADR) ADR (NYSE: TEVA) is to report on its recent quarterly earnings report before the market opens on August 2nd, 2018. The expectation is high that the company will post sales of $4.75 billion down from $5.69 billion reported last year. Earnings per share, on the other hand, should come in at $0.67 a share.

Shake Shack Inc. (NYSE: SHAK)

Shake Shack Inc. (NYSE: SHAK) is expected to post sales of $110.20 million for the recent quarter after market close on August 2, 2018. Earnings per share are expected at $0.17 a share. The company is also expected to maintain full-year sales estimates of $451.32 million.

Kraft Heinz Co (NASDAQ: KHC)

Kraft Heinz Co (NASDAQ: KHC) will report earnings before markets open on August 3, 2018. Investors expect the company to post EPS of $0.92 a share up from $0.89 a share reported in the previous quarter. Revenue, on the other hand, is expected at $6.59 billion.