The Weekly Wrap – Economic Datta and COVID-19 Hit Riskier Assets

The Stats

It was a quiet week on the economic calendar, in the week ending 25th September.

A total of 32 stats were monitored, following 69 stats from the week prior.

Of the 32 stats, 13 came in ahead forecasts, while 17 economic indicators came up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 15 of the stats also reflected an upward trend from previous figures. The remaining 17 stats reflected a deterioration from previous.

For the Greenback, the recovery continued following last week’s pullback. In the week ending 25th September, the Dollar Spot Index rallied by 1.85% to 94.624. In the week prior, the Dollar had fallen by 0.44% to 92.926.

Out of the U.S

It was a relatively quiet week on the economic data front.

Key stats included September’s prelim private sector PMIs, the weekly jobless claims, and August durable goods and core durable orders.

The stats were skewed to the negative in the week.

Service sector growth slowed marginally, with the PMI slipping from 55.0 to 54.6, which weighed on the composite. The manufacturing sector saw a pickup in growth, however, with the PMI rising from 53.1 to 53.5.

Labor market numbers also disappointed. In the week ending 18th September, initial jobless claims came in at 870k. This was up from 866k from the week prior.

At the end of the week, durable goods orders and core durable goods orders wrapped up the week.

In August, durable goods orders rose by 0.4%, with core durable goods orders also rising by 0.4%. The numbers fell well short of forecasts and increases in July.

FED Chair Powell was also a key driver in the week.

Giving testimony on Capitol Hill, Powell talked of the need for more support from all levels of the U.S government. The FED Chair called for more government support to speed up the economic recovery. Powell noted that the outlook remained dependent upon the containment of the coronavirus. Aligned with other central banks, Powell also pointed out that, while the economy is showing a marked improvement, uncertainty remained.

In the equity markets, the NASDAQ rose by 1.11%, while the Dow and S&P500 fell by 1.75% and by 0.63% respectively.

Out of the UK

It was a quieter week on the economic calendar.

Key stats included September’s prelim private sector PMIs and CBI Industrial Trend Orders.

The stats were also skewed to the negative.

For September, the CBI Industrial Trend Orders fell from -44 to -48. Economists had forecast a rise to -40.

Of greater significance, however, was slower service sector growth at the end of the 3rd quarter.

The services PMI fell from 58.8 to 55.1. Manufacturing sector activity also slowed, with the PMI falling from 55.2 to 54.3.

Following the talk of negative rates, the stats were not bad enough to force a move by the BoE.

A reintroduction of containment measures could adversely affect the path of the economic recovery, however.

On the Brexit front, failing hopes of a trade agreement between the EU and Britain also weighed.

In the week, the Pound slid by 1.32% to $1.2746, reversing a 0.95% gain from the previous week.

The FTSE100 ended the week down by 2.74%, following a 0.42% decline from the previous week.

Out of the Eurozone

It was another busy week on the economic data front.

Key stats included consumer and business confidence figures and prelim private sector PMIs for September.

It was a mixed bag on the data front.

Eurozone and German consumer confidence saw marginal improvements but not enough to impress. From Germany, business confidence also improved, while coming up short of forecasts.

Key in the week, however, was the prelim PMIs.

While manufacturing sector activity picked up in September, service sector activity slumped, raising concerns over the economic recovery.

France, Germany, and the Eurozone saw a contraction in the services sector. Partially offset by a pickup in the manufacturing sector activity, private sector activity stalled at the end of the quarter.

The Eurozone’s services PMI fell from 50.5 to 47.6, with the composite PMI declining from 51.9 to 50.1. On the positive, was a rise in the manufacturing PMI from 51.7 to 53.7.

While the stats provided direction, a spike in new COVID-19 cases in Europe weighed heavily on the EUR. Concerns over the possible need to reintroduce lockdown measures drove demand for the safety of the Greenback.

For the week, the EUR slid by 1.77% to $1.1631. In the week prior, the EUR had fallen by 0.05% to $1.1840.

For the European major indexes, it was a particularly bearish week. The CAC40 and DAX30 slid by 4.99% and by 4.93% respectively, with the EuroStoxx600 falling by 3.60%.

For the Loonie

It was a particularly quiet week on the economic calendar.

Economic data was limited to August house price figures that had a muted impact on the Loonie.

Concerns over the global economic recovery amidst the spike in new COVID-19 cases weighed on crude oil prices and the Loonie.

The Loonie fell by 1.38% to end the week at C$1.3386. In the week prior, the Loonie had fallen by 0.19%.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 25th September, the Aussie Dollar slid by 3.54% to $0.7031. The Kiwi Dollar wasn’t far behind, ending the week down by 3.15% to $0.6546

For the Aussie Dollar

It was another quiet week for the Aussie Dollar on the economic calendar.

There were no material stats from Australia to provide the Aussie Dollar with direction.

The lack of stats left market sentiment towards COVID-19 and the global economic recovery to sink the Aussie.

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included August trade figures that failed to support the Kiwi Dollar late in the week.

In August, New Zealand’s trade balance slid from a NZ$447m surplus to a NZ$353m deficit. Year-on-year, however, the trade surplus widened from NZ$50m to NZ$1,340m.

A sharp fall in imports and a rise in Kiwi fruit and aircraft drove the trade surplus to its largest since 2014.

On the monetary policy front, the RBNZ was also in action mid-week. Following the talk of negative rates in the month prior, the RBNZ continued to promise further support if needed. In the RBNZ Statement, the RBNZ stated that additional support could come in the form of Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

September’s private sector PMIs were in focus mid-week.

While the numbers were on the positive side, the private sector continued to contract at a marked pace in September. The Manufacturing PMI rose from 47.2 to 47.3, with the Services PMI rising from 45.0 to 45.6.

According to the prelim survey, new orders fell at a weaker pace, while new export orders fell at a stronger pace.

The pace of job shedding eased across the private sector, while the backlogs of work rose at a stronger pace.

Optimism improved across the private sector in spite of the stronger decline in new export orders.

September’s PMIs reaffirmed the BoJ’s statement last week that the Japanese economy was in a serious condition.

The Japanese Yen fell by 0.97% to ¥105.58 against the U.S Dollar. In the week prior, the Yen had risen by 1.50%.

Out of China

It was a particularly quiet week on the economic data front.

There were no material stats to provide the Yuan direction in the week.

On the monetary policy front, the PBoC was in action, however. In line with forward guidance from the summer and market expectations, the PBoC left loan prime rates unchanged.

On the geopolitical front, tensions between the U.S and China continued to hit the global financial markets.

Early in the week, Trump continued to blame China for the COVID-19 pandemic at the UN National Assembly. The war of words continued in the week.

In the week ending 25th September, the Chinese Yuan fell by 0.81% to CNY6.8238. In the week prior, the Yuan had risen by 0.95%.

The CSI300 and Hang Seng fell by 3.53% and by 4.99% respectively.

European Equities: A Week in Review – 25/09/20

The Majors

It was a particularly bearish week for the European majors in the week ending 25th September. The CAC40 and DAX30 slid by 4.99% and by 4.93% respectively, with the EuroStoxx600, falling by 3.60%.

Another banking scandal, a fresh spike in new COVID-19 cases, geopolitics, and economic data left the majors deep in the red.

The Stats

It was a relatively busy week on the Eurozone economic calendar.

Key stats included consumer and business confidence figures and prelim private sector PMIs for September.

Eurozone and German consumer confidence saw marginal improvements but not enough to impress. From Germany, business confidence also improved, while coming up short of forecasts.

Key in the week, however, was the prelim PMIs.

While manufacturing sector activity picked up in September, service sector activity slumped, raising concerns over the economic recovery.

France, Germany, and the Eurozone saw a contraction in the services sector. Partially offset by a pickup in manufacturing sector activity, private sector activity stalled in the Eurozone at the end of the quarter.

The Eurozone’s services PMI fell from 50.5 to 47.6, with the composite PMI declining from 51.9 to 50.1.

With the stats raising some red flags, the spike in new COVID-19 cases across Europe also weighed on risk sentiment. Concerns over the possible need to reintroduce lockdown measures left riskier assets in the deep red for the week.

From the U.S

It was a relatively quiet week. Key stats included the durable goods and core durable orders, weekly jobless claims, and September’s prelim private sector PMIs.

The stats were skewed to the negative, adding downward pressure on the majors later in the week.

While manufacturing sector activity picked up in September, service sector growth slowed at the end of the quarter. While steering clear of the 50 mark, the marginal fall in the services PMI was a red flag mid-week.

On Thursday, the jobless claims figures also disappointed. In the week ending 18th September, initial jobless claims came in at 870k, which was up from 866k in the week prior.

At the end of the week, durable goods and core durable goods orders delivered more disappointing numbers.

Durable goods orders and core durable goods orders both increased by 0.4% in August, falling well short of expectations.

While the stats provided direction in the week, central bank commentary also garnered plenty of attention.

FED Chair Powell delivered testimony through the 1st half of the week, calling for support from all levels of government. Powell also stated that plenty of uncertainty remains, with the containment of COVID-19 key to a sustainable economic recovery.

The Market Movers

From the DAX, it was a particularly bearish week for the auto sector. BMW and Volkswagen slid by 5.94% and by 5.47% to lead the way down. Continental and Daimler saw more modest losses of 0.42% and 2.33% respectively.

It was an even more bearish week for the banking sector. Commerzbank and Deutsche Bank tumbled by 10.71% and by 10.69% respectively.

From the CAC, things were not much better for the banks. BNP Paribas and Soc Gen tumbled by 12.57% and by 13.70% respectively, with Credit Agricole sliding by 11.60%.

For the banking sector, yet another scandal rocked bank stocks across the major exchanges. HSBC and Standard Chartered were among the banks that were in the news for the wrong reasons.

The French auto sector also struggled in the week. Peugeot and Renault ended the week down by 1.87% and by 4.73% respectively.

Air France-KLM was among the worst performers, however, tumbling by 19.1%, with Airbus down by 12.51%.

Rising new COVID-19 cases weighed heavily on travel stocks in the week, as concerns over the possible reintroduction of lockdown measures weighed.

On the VIX Index

It was back into the green for the week ending 25th September. Partially reversing a 3.87% fall from the week prior, the VIX rose by 2.13% to end the week at 26.38.

A 4th weekly loss for the S&P500 delivered the upside for VIX in the week.

For the week ending 25th September, the S&P500 and the Dow ended the week down by 0.63% and by 1.75% respectively. The NASDAQ ended the week up by 1.11%, with a 2.26% rally on Friday delivering the upside.

The Week Ahead

It’s a busy week ahead on the Eurozone economic calendar.

Through the 1st half of the week, prelim inflation figures are due out of France, Spain, Germany, and the Eurozone.

Following market concerns over deflationary pressures last time around, expect the numbers to influence.

Alongside Eurozone prelim inflation figures on Wednesday, German and French consumer spending and German unemployment figures will also influence.

The focus will then shift to September manufacturing PMIs for Italy and Spain. Finalized PMIs for France, Germany, and the Eurozone are also due out.

Barring deviation from prelim numbers, expect Italy and the Eurozone’s PMIs to have the greatest impact on Thursday.

Economic data from the U.S and from China will also provide direction in the week.

U.S consumer confidence, finalized GDP numbers, weekly jobless claims, ISM Manufacturing PMI and nonfarm payrolls, and the U.S unemployment rate are due out.

From China, September’s private sector PMIs on Thursday will also influence market risk appetite. The market’s favored Caixin Manufacturing PMI will have the greatest impact.

Away from the economic calendar, COVID-19 news, Brexit, and U.S-China chatter will also need monitoring.

US Stock Market Overview – Stocks Rise as Nasdaq Closes Positive for the Week

US stocks again whipsawed between positive and negative territory but finished the session in the black. Most sectors in the S&P 500 index were higher led by gains in the Healthcare sector. Energy bucked the trend. The dollar gained traction on Friday, following a stronger than expected durable goods orders report. The VIX volatility index moved lower, as riskier assets were able to move higher. After losing ground for 3-consecutive weeks, the Nasdaq 100 finally settled in the black. Next week markets will begin to focus on the US ISM manufacturing report on Thursday and the employment report scheduled to be released on Friday. Concerns over the November election continue to buoy implied volatility.

After declining for 3-consecutive weeks, the Nasdaq finally took back its position as the leader. The Nasdaq had underperformed the broader S&P 500 index during the prior three weeks but this week rebounded and outperformed. For stocks to continue their trend higher, they will need to large-cap tech stocks to retake the mantle.

House Looks to Pass Stimulus Bill

The House of Representatives is attempting to push forward a $2.4 trillion stimulus bill next week. This is well off the much larger $3.4 trillion stimulus package approved in May.  There White House and Senate Republicans are still far away from the House number. The White House has room to $1.5 trillion, but the Republicans have problems finding a consensus closer to $1 trillion.

Durable Goods Orders Rise More than Expected

US Durable Goods Order rose 0.4% in August after jumping 11.7% in July. Expectations were for a small decline. Durable goods orders were supported by a 0.5% rise in orders for transportation equipment. Orders for non-defense capital goods excluding aircraft, rose 1.8% last month, according to the Commerce Department. Data for July was revised up to show that core capital goods orders rose 2.5% instead of 1.9% as previously estimated.

Morgan Stanley Raised Darden’s Price Target to $112 from $71

American multi-brand restaurant operator, Darden’s price target was raised to $112 from $71 with ‘Equal-weight’ stock rating, according to Morgan Stanley equity analyst John Glass, who also upgraded their EPS estimates to $4.68/$6.35 for the next two fiscal years.

On Thursday, Darden Restaurants reported total sales of $1.53 billion, a decrease of 28.4% driven by negative blended same-restaurant sales of 29.0% and partially offset by the addition of 14 net new restaurants. Reported diluted net earnings per share from continuing operations of $0.28 as compared to last year’s reported diluted net earnings per share of $1.38.

Darden reported adjusted diluted net earnings per share from continuing operations of $0.56, after excluding $0.28 related to corporate restructuring costs, as compared to reported diluted net earnings per share of $1.38.

The Company forecasts fiscal 2021 total sales of approximately 82% of prior year and EBITDA of $200 to $215 million.

“Best in class casual dining operator with a strong brand portfolio. As the largest CDR operator, DRI has substantial scale advantages in shared services which can be levered in a post-COVID environment by improving margins and gaining market share. Lead brand Olive Garden (50% of sales) garners top consumer scores, and its comp sales have historically outpaced the industry,” Morgan Stanley’s John Glass added.

“Acquisition of Cheddar’s has been more challenging than initially expected, though still provides longer-term growth potential. Industry uncertainty and relatively fairly valued shares, in our view, drive our EW rating weighed against DRI’s strong sales track record and operational leadership.”

At the time of writing, Darden stock traded 0.18% lower at $97.13 on Friday; however, the stock is down 10% so far this year.

Several other equity analysts have also updated their stock outlook. UBS raised their target price to $109 from $100; Wells Fargo upped their target price to $104 from $91; BofA Global Research upgraded their stock price forecast to $115 from $100; Truist Securities raised price target to $128 from $100; Stephens upped target price to $115 from $98; Guggenheim upgraded their stock price forecast to $133 from $119 and JP Morgan raised their target price to $105 from $82.

Twenty-four analysts forecast the average price in 12 months at $102.74 with a high forecast of $128.00 and a low forecast of $75.00. The average price target represents a 6.44% increase from the last price of $96.52. From those 24 equity analysts, 15 rated ‘Buy’, nine rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“In the last fiscal year pre-COVID, EBITDA margins were 14%. If/when sales recover to 100% of pre-COVID levels, there is theoretically another 100-150 bp of margin opportunity, subject to reinvestment needs and competitive intensity at that time,” Morgan Stanley’s Adam Jonas said.

“For now, we are comfortable underwriting the 15.5% by FY22, leading us to raise FY21/22 EPS estimates as described below, and raising our price target to $112, based on our CY22 estimate of $6.60 in EPS (or $1.4B EBITDA), and restoring the multiple to pre-COVID averages given this increased visibility. Our bull case factors in the case where EBITDA margins could reach 17%.”

Upside risks: 1) Company is able to significantly gain share. 2) OG/LH comps benefit from higher off-premise sales vs pre-COVID. 3) Margins expand above expected without compromising investments, highlighted by Morgan Stanley.

Downside risks: 1) Regional lockdowns and new virus outbreaks keep consumers from visiting dining rooms (by choice or mandate). 2) Off-premise margins deteriorate. 3) Cheddar’s integration remains challenged in a tough macro backdrop.

U.S. Stocks Set To Open Lower As Durable Goods Orders Increase Less Than Expected

Coronavirus Aid Package Negotiations Are Set To Restart Again

U.S. Republicans and Democrats look ready to restart negotiations on the new coronavirus aid package. Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi signaled that both sides were ready to discuss new proposals.

The U.S. economy clearly needs more stimulus to support consumer activity. However, traders are skeptical that a consensus can be reached, and S&P 500 futures are losing ground in premarket trading.

Previously, Republicans signaled that they were ready to vote for an aid package worth $1.3 trillion while Democrats proposed a package worth $2.2 trillion. There is a huge gap between the positions of two sides, and any deal will require big compromises from both parties.

WTI Oil Fails To Gain Upside Momentum Ahead Of The Weekend

Oil managed to stay close to the $40 level despite the recent market sell-off as declining inventories provided support to prices. At the same time, energy-related stocks had a terrible week, and S&P Energy Sector lost 8.5% in the first four days of this week.

The current market sentiment towards energy-related stocks is negative, and it looks like oil must go higher to provide some support to the beaten shares.

However, oil is under pressure due to problems with coronavirus in various parts of the world, and it remains to be seen whether traders will be willing to increase their bets on oil above the $40 level.

Durable Goods Orders Increase By 0.4%

U.S. has just provided Durable Goods Orders report for August which indicated that Durable Goods Orders increased by 0.4% month-over-month. The analyst consensus called for growth of 1.5%.

Excluding Transportation, Durable Goods Orders grew by 0.4% compared to analyst consensus of 1.2%.

Together with yesterday’s Initial Jobless Claims report, Durable Goods Orders report painted a picture of an economy that is slowing down after the initial rebound.

The key question is whether traders will bet that disappointing economic reports will push Republicans and Democrats to reach consensus on the new aid bill. If this happens, stocks may have material upside from current levels.

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

ConocoPhillips Forecasts a Recovery in Global Oil Demand; Stock Price Target $51

ConocoPhillips, an independent oil and gas exploration company, forecasts global demand for oil recovering to 100 million barrels per day and increasing from there on, a senior executive said on Thursday, Reuters reported.

According to the latest Reuters report, senior vice president Dominic Macklon said during a Question and Answer session with Raymond James said, “The view stands in contrast to that of rival BP Plc, which sees the coronavirus pandemic leaving a lasting effect on global energy demand, though ConocoPhillips still expects “quite a bit of uncertainty next year”.

Macklon added that ConocoPhillips’ capital spending for next year will be “somewhat below” its previously expected this year’s level of $6.6 billion.

ConocoPhillips shares closed 2.06% higher at $33.60 on Thursday. However, the stock is still down about 50% so far this year.

ConocoPhillips stock forecast

Twelve analysts forecast the average price in 12 months at $51.45 with a high forecast of $62.00 and a low forecast of $45.00. The average price target represents a 53.13% increase from the last price of $33.60. From those 12 equity analysts, 11 rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $47 with a high of $69 under a bull scenario and $23 under the worst-case scenario. Wells Fargo raised their price target to $56 from $54; MKM Partners lowered their target price to $55 from $57 and Susquehanna cuts target price to $52 from $54.

A number of other equities research analysts have also recently issued reports on the stock. MKM Partners increased their target price on ConocoPhillips to $58 from $57 and gave the stock a “buy” rating in May. UBS Group increased their target price to $62 from $50 and gave the stock a “buy” rating in June. Raymond James increased their target price to $48 from $46 and gave the stock an “outperform” rating.

Analyst views

“COP checks all the boxes for sustained outperformance: excellent management, disciplined investment, and consistent return of cash coupled with high quality, low-cost portfolio that can deliver an attractive combination of FCF and growth. Attractive value proposition even in the current commodity price environment with leverage to any rally in oil and with resiliency should prices remain low,” said Devin McDermott, equity analyst and commodities strategist at Morgan Stanley.

“Strong balance sheet. While management received some investor pushback in 2019 for building an $8 billion strategic cash balance, that disciplined strategy is paying off in 2020 – creating financial and strategic flexibility,” McDermott added.

Upside and Downside Risks

Upside: 1) Higher commodity prices. 2) Upside to Alaska resource discovery. 3) Better well performance in Lower 48 – highlighted by Morgan Stanley.

Downside: 1) Lower commodity prices. 2) Cost inflation. 3) Alaska discovery has less potential resources than expected. 4) Worse than expected well results in the Eagle Ford, Permian, and Bakken.

Check out FX Empire’s earnings calendar

European Equities: A Quiet Economic Calendar Leaves Geopolitics and COVID-19 in Focus

The Majors

It was a bearish day for the European majors on Thursday. The CAC40 and EuroStoxx600 fell by 0.83% and by 1.02% respectively, with the DAX30 ending the day down by 0.29%.

Economic data and the latest uptrend in new COVID-19 cases weighed on the majors, with the markets now expecting further stimulus to counter the sputtering economic recovery.

The Stats

It was a relatively busy day on the Eurozone economic calendar. Germany’s IFO Business Climate Index and sub-index figures were in focus early in the European session.

In September, the Business Climate Index rose from 92.5 to 93.4. Economists had forecast a rise to 93.8. The current assessment sub-index rose from 87.9 to 89.2, with the expectations index up from 97.5 to 97.7.

By sector:

Manufacturing: The Business Climate Index saw a sizeable increase, with significantly fewer companies assessing their current business situation as difficult. More companies also expected that their business situation will improve.

Services: By contrast, the index fell for the 1st time in 5-months, as a result of weaker optimism. Firms viewed their current situation as marginally better.

Trade: Companies were considerably more satisfied with the current business situation, with many being more optimistic about the near-term.

Construction: The index was on the rise once more, with the current situation indicator hitting its highest level since March. While pessimism persisted, firms were less pessimistic than back in August.

From the U.S

It was a relatively busy day on the economic calendar. August new home sales and the weekly jobless claims figures were in focus late in the European session.

In August, new home sales rose by 4.8%, following a 13.9% spike in July. Economists had forecast a 0.1% decline, month-on-month.

More significantly, however, were the jobless claims figures.

In the week ending 21st September, initial jobless claims stood at 870k, which was up from 866k from the previous week. Economists had forecast 840k.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Thursday. Continental rallied by 3.53% to lead the way, with Daimler and Volkswagen rising by 1.60% and by 1.90% respectively. BMW saw a more modest 0.48% gain on the day.

It was a mixed day for the banks after the scandal-driven sell-off. Deutsche Bank rose by 0.46% while Commerzbank ended the day down by 0.87%.

From the CAC, bank stocks saw more losses. Credit Agricole and Soc Gen slid by 1.83% and by 2.61% respectively. BNP Paribas saw a relatively modest 0.94% loss, however.

It was also a bearish day for the French auto sector. Peugeot and Renault ended the day down by 0.55% and by 0.36% respectively.

Air France-KLM hit reverse once more, sliding by 6.77%, with Airbus SE ending the day down by 3.46%.

On the VIX Index

The VIX fell by 0.24% on Thursday. Following a 6.40% gain on Wednesday, the VIX ended the day at 28.51.

Disappointing economic data from the U.S weighed on the majors, while FED Chair Powell’s talk of more support provided a cushion for the U.S markets on the day.

The NASDAQ and S&P500 rose by 0.37% and by 0.30% respectively, with the Dow ending the day up by 0.20%

VIX 25/09/20 Hourly Chart

The Day Ahead

It’s a particularly quiet day ahead on the Eurozone economic calendar. There are no material stats to provide the European majors with direction.

Late in the session, U.S durable goods and core durable goods will garner some interest, however.

With no stats to influence early on, geopolitics and COVID-19 will be the key drivers on the day. On the COVID-19 front, any talk of a reintroduction of restrictions would test support.

U.S – China tensions and Brexit chatter will also need monitoring.

The Futures

In the futures markets, at the time of writing, the Dow was up by 116 points, with the DAX up by 82.5 points.

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

Asia Pacific Indexes Chase Wall Street Higher in Early Trade on Friday

The major Asia Pacific stock indexes are expected to open steady to better on Friday in a cautious trade as investors react to the better-than-expected performance on Wall Street on Thursday. This follows steep losses the previous session.

Thursday Recap

The Asia-Pacific markets saw losses on Thursday, following an overnight drop on Wall Street.

Hong Kong’s Hang Seng Index fell 1.82% to close at 23,311.07. Mainland Chinese stocks slipped on the day, with the Shanghai Composite down 1.72% to approximately 3223.18 while the Shenzhen Component declined 2.238% to about 12,816.61.

The Taiex in Taiwan dropped 2.54% to close at 12,264.38. In Japan, the Nikkei 225 fell 1.11% to finish its trading day at 23,087.82 while the Topix Index shed 1.08% to close at 1,626.44.

Over in Australia, the S&P/ASX 200 declined 0.81% on the day to 5,875.90.

Tech Shares Led the Decline

Technology shares in Asia took a hit on Thursday, following losses seen by their counterparts stateside.

In Japan, conglomerate Softbank Group saw its stock drop 4.52%. Kakao in South Korea also fell 3.69%. In Hong Kong, shares of Chinese smartphone maker Xiaomi slipped 4.84% while Tencent declined 1.75%, with the Hang Seng Tech Index falling 3.35% on the day to 7,054.28. Meanwhile, Taiwan Semiconductor Manufacturing Company shares in Taiwan shed 2.42%.

Friday’s Early Forecast

Asian stocks were set to open steady to higher as a late Wall Street rally supported global sentiment although weak U.S. data and uncertainty about a stimulus package in Washington have kept a lid on confidence.

U.S. stocks ended positive in choppy trading on Thursday, led by a dogged comeback in the technology sector, having initially sold off on higher than expected unemployment claims.

In early Asian trade, Australia’s S&P/ASX 200 futures rose 0.12% and Japan’s Nikkei 225 futures added 0.13%. Hong Kong’s Hang Seng Index futures rose 0.45%.

In the U.S., Democrats in the U.S. House of Representatives are working on a $2.2 trillion coronavirus stimulus package that could be voted on as soon as next week, with House Speaker Nancy Pelosi reiterating she is ready to negotiate on it with the White House.

Keep An Eye on South Korea

Asia Pacific investors will be keeping an eye on South Korea after stocks fell on Thursday as tensions on the Korean Peninsula reignited.

The index lost 2.59% following reports that South Korea’s defense ministry said North Korea had killed a missing official from the South earlier this week.

Traders will be watching to see if the situation gets diffused or if it escalates. Although the broad-based index fell sharply, shares of South Korean defense firm Victek soared 25.13%.

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

AMC Entertainment Shares Plunge Over 4% as Company Eyes to Sell 15 Million Shares

Pandemic-hit AMC Entertainment Holdings’ shares fell more than 4% on Thursday after it said that it has reached an agreement with some banks to sell nearly 15 million shares as COVID-19 pandemic hurt business, sending its shares down over 4%.

The world’s largest movie theater operator said in a filing that postponement of major releases slated for the Thanksgiving and Christmas holidays until next year would significantly impact its liquidity in the fourth quarter, Reuters reported.

Following this announcement, AMC Entertainment shares fell over 4% to $4.57 on Thursday. However, the stock is still down over 30% so far this year.

AMC Entertainment stock forecast

Five analysts forecast the average price in 12 months at $4.63 with a high forecast of $7.00 and a low forecast of $2.00. The average price target represents a 0.33% increase from the last price of $4.62. From those five equity analysts, none rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

AMC Entertainment had its price target raised by B. Riley to $5.50 from $4. B. Riley currently has a neutral rating on the stock. Wedbush raised their price objective to $7 from $4 and gave the company a neutral rating. Credit Suisse Group downgraded AMC Entertainment from a neutral rating to an underperform rating and cut their target price for the stock to $2 from $4.

A number of other equities research analysts have also recently issued reports on the stock. Barrington Research reaffirmed a hold rating on shares of AMC Entertainment. Citigroup raised their target price to $4.00 and gave the stock a sell rating. At last, Zacks Investment Research cut their target price on to $3.50.

Analyst views

“With future capital returns forecasted to fall short of the cost of capital, AMC is expected to continue to be a major Value Eraser. With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. AMC has a slightly positive Appreciation Score of 68 but a very low Power Rating of 4, triggering the Negative Value Trend Rating,” noted Price Target Research.

Check out FX Empire’s earnings calendar

U.S. Stocks Set To Open Lower As Initial Jobless Claims Unexpectedly Increase

Stocks Look Ready To Continue Yesterday’s Downside Move

S&P 500 futures are losing ground in premarket trading as traders are worried about the future pace of the economic recovery.

Leading tech stocks are also under pressure in the premarket trading session. Tesla is set to continue yesterday’s sell-off as it is already down by more than 3%.

Today, France and Germany reported that business sentiment improved for the fifth month in a row but this news did not provide any material help to global markets as traders remained focused on the second wave of coronavirus.

Initial Jobless Claims Increase To 870,000

U.S. has just provided Initial Jobless Claims and Continuing Jobless Claims reports.

Initial Jobless Claims increased from 866,000 (revised from 860,000) to 870,000 while analysts expected that Initial Jobless Claims would decline to 840,000.

Continuing Jobless Claims declined from 12.75 million (revised from 12.63 million) to 12.58 million compared to analyst consensus of 12.3 million.

The employment reports were materially worse than expected and put additional pressure on S&P 500 futures.

U.S. Dollar Strength Indicates That Investors Are Seriously Worried About The Pace Of Recovery

The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, managed to rebound from a low of 91.75 that was reached at the beginning of September to 94.50.

This rebound happened despite the Fed’s pledge to keep the rates at the bottom until the end of 2023. The strength of the current rebound indicates that investors are seriously worried about the perspectives of the world economic recovery.

The Volatility Index, VIX, has also rebounded from lows reached in August. VIX is often called a fear index since it rises when traders are worried about economic perspectives.

U.S. dollar upside has already put significant pressure on commodities. Silver and gold have suffered a sell-off while copper declined from recent highs. Only WTI oil managed to stay near the $40 level thanks to the support from the hurricane season.

If the U.S. dollar continues its upside move, commodities will remain under pressure, and commodity-related stocks will likely decline to lower levels.

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

Johnson & Johnson Begins Final Stage Trial of COVID-19 Vaccine; Target Price $170

Johnson & Johnson, one of the world’s largest and most comprehensive manufacturers of healthcare products, said on Wednesday that it has begun its large-scale, pivotal, multi-country Phase-3 trial for its COVID-19 vaccine candidate, sending shares as high as 2%.

The company expects the first batches of the COVID-19 vaccine, JNJ-78436735, to be available for emergency use authorization in early next year, if proven to be safe and effective.

Following this announcement, Johnson & Johnson shares closed 0.16% higher at $144.44 on Wednesday. However, the stock is still down about 1% so far this year.

The company, which is well-known for consumer products like Band-Aids, said it will enrol up to 60,000 volunteers across three continents and will study the safety and efficacy of a single vaccine dose versus placebo in preventing COVID-19.

Johnson & Johnson added that the vaccine, if successful, is estimated to remain stable for two years at -20°C and at least for three months at 2-8°C. This makes the vaccine candidate compatible with standard vaccine distribution channels and would not require new infrastructure to get it to the people who need it.

Johnson & Johnson stock forecast

Seven analysts forecast the average price in 12 months at $166.86 with a high forecast of $175.00 and a low forecast of $158.00. The average price target represents a 14.23% increase from the last price of $146.07. All those seven equity analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley target price is $170 with a high of $204 under a bull scenario and $110 under the worst-case scenario. SVB Leerink reiterated an “outperform” rating on shares of Johnson & Johnson. Zacks Investment Research lowered shares of Johnson & Johnson from a “hold” rating to a “sell” rating and set a $150 price target for the company.

A number of other equities research analysts have also recently issued reports on the stock. Stifel Nicolaus lowered shares of Johnson & Johnson from a “buy” rating to a “hold” rating. Bank of America reissued a “buy” rating. At last, Credit Suisse Group reissued a “buy” rating.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a mild selling opportunity.

Analyst views

“Our price target of $170 for JNJ is based on a 19.0x multiple off of our base case 2021e EPS, supported by our SOTP analysis. We assume J&J trades at a mid-single-discount multiple with S&P 500 given defensive-oriented profile, growth acceleration in Pharma, and improving fundamentals in Consumer/MD&D, balanced by litigation overhang,” said David Lewis, equity analyst at Morgan Stanley.

“Litigation liability has been more than reflected in J&J shares, in our view, creating a meaningful valuation disconnect vs. the S&P. Pharma-driven acceleration is poised to drive the multiple higher in 2020 led by blockbuster franchises, pipeline launches and easing comparables. Momentum in MD&D and Consumer segments should drive a more balanced growth profile which is less reliant on Pharma,” Lewis added.

Upside and Downside Risks

Upside: 1) Pharmaceutical growth accelerates to the HSD sustainabily. 2) Opioid and talc litigations are settled. MD&D growth accelerates – highlighted by Morgan Stanley.

Downside: 1) Litigation overhang persists / legal liabilities are greater than anticipated. 2) Pharma pipeline is unable to offset biosimilar and competitive risks. 3) COVID-19 impact to MD&D is more severe. Turnarounds in Consumer and MD&D fail to materialize or slower than expected.

Check out FX Empire’s earnings calendar

US Stocks Tumble from Extremes as Investors Search for Sweet Spot that Represents Value

The major U.S. stock indexes finished lower on Wednesday after fresh economic data revealed a cooling of U.S. business activity and the stalemate in Congress over more stimulus elevated concerns about the strength of the economy while the number of global coronavirus cases continued to rise.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3236.92, down 78.65 or -2.31%. The blue chip Dow Jones Industrial Average finished at 26763.13, down 525.05 or -1.88% and the tech-driven NASDAQ Composite closed at 10632.99, down 330.65 or -2.95%.

Economy is Leveling Off

From March 23 to September 2, hopes of a strong recovery and mountains of fiscal and monetary stimulus measures fueled a rally that took the S&P 500 and NASDAQ Composite to all-time highs. But doubts over another stimulus bill and a sell-off in overvalued heavyweight technology-related stocks have weighed on investor sentiment since the market peaked the first week of the month.

Meanwhile, Federal Reserve Chair Jerome Powell said on Wednesday that the central bank was not planning any “major” changes in its Main Street Lending Program, while saying that both the Fed and Congress need to “stay with it” in working to bolster the economic recovery.

Before Powell made his statement, data from IHS Markit showed gains at factories were offset by a slowdown in the broader services sector in September, suggesting a loss of momentum in the economy at a time when concerns are rising about a potential surge in COVID-19 cases heading into the colder months.

Wednesday market six months to the day that U.S. stocks on March 23 hit their lowest point during the pandemic-induced sell-off. The historic rally from that low was fueled by the notion that the U.S. economy would post a “V-shaped” recovery.

Recent economic data and other developments, however, suggest the economy is now leveling off about 80% of activity before the pandemic and won’t get back to pre-pandemic levels until a vaccine against COVID-19 is in place.

The price action suggests that investors believe the economy is going to struggle recovering that last 20%. Investors believe the economy will eventually get there, but the process is going to be much slower than it was in the first three months of the reopening.

Sectors and Stocks

The S&P 500 slid to lows last seen in late July and is now down 9.6% from its record high hit three weeks ago. That puts it less than half a percentage point from entering corrective territory, as the NASDAQ did last week.

On Wednesday, the benchmark and tech-driven indexes fell more than 2%, and all 11 of the major S&P sectors closed lower. Energy already the worst-performing sector this year – led the rout in its biggest single-day decline since July 9.

Additionally, Wall Street favorites including Apple Inc, Google-parent Alphabet Inc and Amazon.com Inc, which have borne the brunt of recent losses, again declined at a rate exceeding losses of the benchmark S&P 500. A decline in Facebook Inc came in below the S&P decline.

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

European Equities: Economic Data, COVID-19 News, and Geopolitics in Focus

Economic Calendar:

Thursday, 24th September

German IFO Business Climate Index (Sep)

The Majors

It was a relatively bullish day for the European majors on Wednesday, with the CAC40 rising by 0.62% to lead the way. The DAX30 and EuroStoxx600 weren’t far behind, with gains of 0.39% and 0.55% respectively.

A sharp pickup in manufacturing sector activity in September delivered support on the day, with the Eurozone Manufacturing PMI hitting a 25-month high. Service sector activity waned, however, limiting the upside for the majors.

Adding to the upside on the day was a continued slide in the EUR, which fell back to $1.16 levels.

The Stats

It was a particularly busy day on the Eurozone economic calendar. Ahead of the European open, German consumer confidence figures were in focus.

For October, Germany’s GfK Consumer Climate Index rose from a revised -1.7 to -1.6. Economists had forecast an increase to -1.0.

According to the GfK Survey,

  • Both economic and income expectations were on the rise, while propensity to buy tumbled.
  • The indicator for consumer income expectations rose by 3.3 points to 16.1 points.
  • There was an even sharper rise in consumer sentiment towards the German economic outlook. Economic expectations rose by 12.4 points to 24.1, logging a 5th consecutive monthly increase.
  • The propensity to buy indicator fell by 5.3 points to 38.4, however.

Later in the morning, prelim private sector PMI numbers for September were in focus.

France’s manufacturing PMI rose from 49.8 to 50.9, while the services PMI declined from 51.5 to 47.5. Economists had forecast PMIs of 50.5 and 51.5 respectively.

For Germany, the Manufacturing PMI increased from 52.2 to 56.6, while the services PMI slid from 52.5 to 49.1 Economists had forecast PMIs of 52.5 and 53.0 respectively.

In September, the Eurozone’s Services PMI slid from 50.5 to 47.6, while the Manufacturing PMI rose from 51.7 to 53.7. Economists had forecast PMIs of 51.9 and 50.5 respectively.

According to the prelim September survey,

  • The prelim Eurozone composite output index fell from 51.9 to a 3-month low 50.1.
  • On the slide was the Service PMI Activity Index that slid from 50.5 to a 4-month low 47.6.
  • By contrast, the Manufacturing PMI rose to a 25-month high 53.7.
  • For the manufacturing sector, a surge in new orders drove the PMI, with Germany’s private sector leading the way.
  • A general trend was seen across the bloc, however, with the service sector sounding the alarm bells.
  • On employment, the private sector reported a 7th consecutive month of job cuts, albeit at a slower pace.

From the U.S

It was a busier day. September’s prelim Makit private sector PMIs provided direction later in the session.

The Services PMI slipped from 55.0 to 54.6, while the Manufacturing PMI rose from 53.1 to 53.5. Economists had forecast PMIs of 54.7 and 53.1 respectively.

FED Chair Powell was also in focus on Tuesday, delivering a 2nd day of testimony on Capitol Hill. Powell talked of the need for more policy to support economic recovery. The FED Chair also noted that there is still a long way to go and that the recovery would be faster if support came from both the FED and from Congress…

The Market Movers

For the DAX: It was back into the red for the auto sector on Wednesday. BMW and Volkswagen fell by 1.08% and by 1.34% to lead the way down. Continental and Daimler saw more modest losses of 0.42% and 0.70% respectively.

It was yet another day in the red for the banks. Deutsche Bank fell by 0.83%, with Commerzbank ending the day down by 2.60%.

While there was plenty of red across the DAX, Adidas rallied by 2.68%. Better than expected Nike earnings delivered support on the day.

From the CAC, bank stocks also continued to struggle in the wake of the latest scandal. BNP Paribas fell by 2.60%. to lead the way down. Credit Agricole and Soc Gen saw more modest losses of 0.76% and 1.18% respectively.

It was another bullish day for the French auto sector, however. Peugeot and Renault ended the day with gains of 1.77% and 3.41% respectively.

Air France-KLM found much-needed support, rising by 0.12%, while Airbus SE slipped by 0.93%.

On the VIX Index

The VIX rose by 6.40% on Wednesday. Reversing a 3.31% fall from Tuesday, the VIX ended the day at 28.58.

Market reaction to dovish chatter from the FED weighed on the majors mid-week. FED Chair Powell talked of the need for more support to sustain the economic recovery.

On the economic data front, service sector activity saw marginally slower growth in September, raising further questions over the economic outlook.

The NASDAQ and S&P500 slid by 3.02% and by 2.37% respectively, with the Dow ending the day down by 1.92%

VIX 24/09/20 Daily Chart

The Day Ahead

It’s a quieter day ahead on the Eurozone economic calendar. Key stats include Germany’s IFO Business Climate Index figures for September.

Expect the numbers to influence, though the latest spike in new COVID-19 cases across the EU could overshadow any upbeat numbers.

From the U.S, the weekly jobless claims figures will also draw plenty of attention later in the session.

Aside from the economic indicators, FED Chair Powell and U.S Treasury Secretary Mnuchin are also in focus…

The Futures

In the futures markets, at the time of writing, the Dow was up by 58 points, while the DAX was down by 95.5 points.

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

US Stock Market Overview – Stocks Slide and Volatility Rose Despite Solid PMI Data

US stocks moved lower on Wednesday despite news that the House and the White House had agreed to a temporary spending bill. All sectors in the S&P 500 index were lower, driven down by Energy. Cyclicals were the best performing sector in the S&P 500 index. Energy shares were under pressure despite a rally in crude oil and natural gas. Crude oil moved higher following a larger than expected draw in gasoline inventories. Mortgage applications rose in the latest week rising nearly 7%. This confirms Tuesday’s better than expected existing home sales data. The VIX volatility index rebounded rising nearly 6%, and nearly hitting 2.50. US manufacturing PMI rose in September according to a report from IHS Markit.

Mortgage Applications Continue to Rise

The Mortgage Bankers Association’s reported that total mortgage application volume increased 6.8% last week. Refinance demand surged up 9% for the week and 86% annually. The refinance share of mortgage activity increased to 64.3% of total applications from 62.8% the previous week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 increased to 3.10% from 3.07%.

Manufacturing Activity Rose but Services Eased

IHS Markit reported on Wednesday that the initial manufacturing index rose to 53.5 in September from 53.1 in the prior month. This is a 20-month high. The agency also reported that total business activity index slipped to 54.4 in September from 54.6 in the previous month. New orders increased for the second straight month. The activity has been helped by an acceleration in the pace of new business growth at services providers.

Coupa Software’s Price Target Raised to $330 with Overweight Rating, $466 in Best Case: Morgan Stanley

Coupa Software Inc’s price target was raised to $330 from $272 with ‘Overweight’ stock rating, according to Morgan Stanley equity analyst Stan Zlotsky, who also said sees a solid execution coupled with improving macro setting up the company well for a potential FY22 growth re-acceleration.

Early this month, the cloud-based expense management platform reported total revenue of $125.9 million, an increase of 32% compared to the same period last year. Subscription revenues were $111.6 million, an increase of 34% compared to the same period last year.

The company forecasts total revenues between $123.0 to $124.0 million for the third quarter and between $496.5 to $498.5 million for the full-year fiscal 2021.

“Most investors clearly see the impact COVID has had on Coupa’s growth in FY21, which we think creates an opportunity to own one of the premier SaaS assets ahead of a potential growth acceleration into FY22,” Morgan Stanley’s Adam Jonas said.

“We see a fairly clear runway for Coupa getting to mid-30% revenue growth in FY22 through: 1) organic growth of 25-30%; 2) Coupa Pay starting to hit revenue more materially – we estimate ~$60M potential; 3) $20-$25 million from Bellin acquisition; 4) $10-$15 million from Yapta acquisition as corporate travel resumes. Compared to current consensus FY22 growth of ~26%, we see the potential for Coupa to deliver the beat/raise cadence moving forward and outperform Street expectations through the year.”

At the time of writing, Coupa stock traded 1.5% higher at $272.15 on Wednesday; however, the stock is up over 80% so far this year.

Several other equity analysts have also updated their stock outlook. KeyCorp increased their price target on Coupa Software to $325 from $320 and gave the stock an “overweight” rating. Raymond James increased their price target to $300 from $235 and gave the stock an “outperform” rating. Truist increased their price target to $300 from $240.

Seventeen analysts forecast the average price in 12 months at $291.53 with a high forecast of $339.00 and a low forecast of $232.00. The average price target represents a 6.52% increase from the last price of $273.68. From those 17 equity analysts, 11 rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“In an uncertain macro environment, we expect relative outperformance in COUP due to  1) defensive nature of Coupa’s core business spend management (BSM) offering, 2) expanding TAM from entry into B2B payments (Coupa Pay) and 3) rapidly improving profitability – all of which drive durable LT growth, in our view,” Morgan Stanley’s Stan Zlotsky added.

“Our $330 price target is based on combining our $193 base case value for the core BSM business and our conservative Coupa Pay estimates, which imply $137 of incremental value. Our price target implies 33X CY21 EV/Sales and 0.94x growth adjusted vs. SaaS peers at 0.56x, a premium we think is appropriate given model conservatism, higher contribution margins from Coupa Pay and sustainability of long-term growth.”

Upside risk: Coupa Pay gains adoption faster than expected, opening a potentially large incremental TAM opportunity, highlighted by Morgan Stanley.

Downside risks: Increased competition from large, well established ERP vendors like Oracle and SAP Ariba. Prolonged macro slowdown limits new customer growth and share gains.

Demographics Squeeze Advanced Economies’ Long-Term Growth Potential; Big Test for Italy & Japan

Scope Ratings has examined the impact of demographic trends on long-term economic growth in major economies, assuming productivity growth and employment rates remain constant.

“We show that GDP growth rates are likely to decrease in all countries in the coming decades, but large differences exist between advanced economies. Comparing the best and worst performers – the US on the one side and Italy and Japan on the other – over time highlights the magnitude of the problem: by 2050, US GDP could be significantly higher compared to its 2020 level in real terms, while, in the absence of significant productivity and employment gains, Japan and Italy would likely have lower real GDP levels than potential GDP today,” says Giulia Branz, analyst at Scope Ratings.

At the same time, countries can enhance productivity to maintain positive long-term growth and implement policies to address adverse demographic trends and employment trends – two key variables that are captured in the ESG-risk pillar in Scope’s forthcoming update to its sovereign rating methodology.

Demographics explain a large part of structural downward trends in growth

Demographic factors explain a large part of the downward trend in advanced economies’ recent economic growth rates and are likely to remain important over the coming decades according to Scope’s study of the 1960-2050 period, focusing on working-age populations, productivity, and employment rates.

“Our model holds productivity and employment rates constant at 2014-19 levels – which we recognize is a bold assumption as these can change significantly as a result of government policies – but this allows us to estimate a country’s growth prospects based only on its demographic trends that are less likely to fluctuate as significantly,” says Branz.

Significant differences in growth prospects between countries

Growth prospects are structurally declining in all advanced economies, but significant differences exist across selected countries:

  • The US, UK, and France are likely to continue to grow over the long term thanks to relatively favorable demographic trends.
  • Germany and Spain are likely to see GDP stagnate over the coming decades. Adverse demographic trends are likely to offset some of the expected gains in productivity and employment (assuming the latter are sustained over the coming period).
  • Japan and especially Italy would likely experience a marked decline in GDP levels over the next decades based only on adverse demographic trends were such trends not offset with productivity and employment gains that have been distinctly lacking over recent years.

“Our findings have important implications for public debt dynamics and, as a result, sovereign ratings,” says Branz. “Policies that improve countries’ productivity levels, demographic trends, and employment rates are critical to ensuring the long-term sustainability of public debt.”

Download the full report from Scope Ratings.

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

Giulia Branz is Associate Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.

U.S. Stocks Set To Open Higher As Nike Smashes Earnings Estimates

Nike Easily Beats Earnings Estimates

S&P 500 futures are up in premarket trading as traders cheer great results from Nike which beat estimates on both earnings and revenue.

Nike reported revenue of $10.6 billion and GAAP earnings of $0.95 per share which were much higher than the analyst consensus which called for revenue of $9.15 billion and earnings of $0.48 per share.

Nike achieved strong growth in its online sales and managed to offset the negative impact of the coronavirus pandemic. Not surprisingly, Nike shares are gaining more than 10% in premarket trading and look ready to open at all-time highs.

Tesla Set To Open Lower As ‘Battery Day’ Failed To Live Up To High Expectations

Tesla shares are down by about 5% in premarket trading as investors were disappointed to hear that they will have to wait several years for new batteries.

In addition, Elon Musk did not offer any specific guidance on the cost and the driving range of the new batteries.

He stated that Tesla could produce a $25,000 car that would be ready to compete with comparable gasoline cars in three years, but investors clearly wanted him to be more specific.

Tesla shares are up more than 400% year-to-date so it was really hard to live up to such high expectations. That said, a continuation of correction in Tesla shares may put some pressure on investor mood in other high-flying tech stocks.

All Eyes On PMI Reports

Today, the U.S. will provide flash readings of Manufacturing PMI and Services PMI for September. Manufacturing PMI is expected to stay unchanged at 53.1 while Services PMI is projected to decline from 55 to 54.7.

PMI reports from other parts of the world indicated that the market should be ready for a negative surprise on the services side. In Euro Area, Services PMI declined from 50.5 in August to 47.6 in September.

Numbers below 50 show contraction so it is clear that Euro Area services segment is already suffering from the second wave of coronavirus. In the UK, Services PMI declined from 58.8 to 55.1.

If the U.S. Services PMI report is better than expected, stocks may get additional support. In the opposite case, the market may find itself under pressure due to worries about the sustainability of economic recovery.

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

Ford Motors to Invest C$1.95 Billion in Canada Operations Under Unifor Union Deal

Ford Motors, an American multinational automaker, will invest 1.95 billion Canadian dollars in its Oakville and Windsor plants in Canada, Unifor union National President Jerry Dias said.

Unifor National President, Jerry Dias said: “I’m very pleased to announce that on behalf of the more than 6,000 members who work at Ford Motor Company, we have negotiated $1.95 billion of investments to retool the Oakville complex to build five models of electric vehicles and bring a new product to the engine plant in Windsor.”

“Today is an historic day. We are not only talking about solidifying the footprint of the auto industry in the short-term but for the long term. I think it’s fair to say that as an organization we hit a home run,” said Dias.

Dias added that up until today, of the $300 billion announced globally in EV investments as the auto industry transforms from combustible engines to battery-electric vehicles, not one nickel had been allocated Canada. But with today’s announcement, that changes.

Ford shares closed 1.31% lower at $6.78 on Tuesday; the stock is down about 30% so far this year.

Ford stock forecast

Eleven analysts forecast the average price in 12 months at $7.46 with a high forecast of $8.00 and a low forecast of $4.90. The average price target represents a 10.03% increase from the last price of $6.78. From those 11 equity analysts, three rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. Evercore ISI raised the price target to $8 from $5; Citigroup upped their stock price objective to $7.5 from $5.5 and Ford Motor had its target price raised by Credit Suisse Group to $8 from $7. The brokerage currently has a neutral rating on the auto manufacturer’s stock.

A number of other equities research analysts have also recently issued reports on the stock. Barclays upped their price objective to $7 from $4 and gave the company an equal weight rating. Royal Bank of Canada dropped their price target to $5 from $6.50 and set a sector to perform rating.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst views

“We raise our 2020 Ford EPS forecast to ($0.90) vs. our prior forecast of ($1.30), while for 2021 and 2022 our EPS rises to positive $0.75 and $1.25 vs. our prior forecast of $0.30 and $0.80 respectively. On our revised price target of $8, Ford trades at just over 10x our 2021E EPS. Currently, the stock trades at just over 9x our revised 2021 EPS forecast,” Adam Jonas, equity analyst at Morgan Stanley noted in June.

“We raise our 3Q N. American Ford volume forecast to negative 12% Y/Y vs. down 15% previously. Our 4Q volume is revised to down 3% vs. down 5% previously. This slight upward adjustment reflects stronger than expected US SAAR, a rebound in used vehicle prices, and more supportive auto credit vs. our prior forecasts,” he added.

Upside and Downside Risks

Upside: 1) More detail around restructuring actions. 2) Positive share gains in pickups, Ford’s strongest segment. 3) Decomplexification actions. 4) Launch execution. 5) Further announcements around EVs or AVs- highlighted by Morgan Stanley.

Downside: 1) US SAAR resiliency (2020 base case 14.0MM). 2) Further COVID-19 impacts. 3) The F-150 pickup truck loses market share. 4) Slowdown in key oil-dependent end markets. 5) Launch / Warranty issues continue to remain a problem.

European Equities: Private Sector PMIs , Powell, and COVID-19 in Focus

Economic Calendar:

Wednesday, 23rd September

GfK German Consumer Climate (Oct)

Spanish GDP (QoQ) (Q2)

French Manufacturing PMI (Sep) Prelim

French Services PMI (Sep) Prelim

German Manufacturing PMI (Sep) Prelim

German Services PMI (Sep) Prelim

Eurozone Manufacturing PMI (Sep) Prelim

Eurozone Markit Composite PMI (Sep) Prelim

Eurozone Services PMI (Sep) Prelim

Thursday, 24th September

German IFO Business Climate Index (Sep)

The Majors

It was a mixed day for the European majors following Monday’s sell-off. The DAX30 and EuroStoxx600 rose by 0.41% and by 0.20% respectively, while the CAC40 fell by 0.40%.

There was little influence from a light economic calendar on the day. While bank stocks continued to struggle amidst the latest scandal, dip-buyers delivered support on the day.

A softer EUR added support to the DAX30 in particular as the Dollar bounce back continued.

The Stats

It was a quiet day on the Eurozone economic calendar. The Eurozone’s flash consumer confidence figure was in focus late in the European session.

According to the latest survey, the Eurozone’s Consumer Confidence Indicator rose from -14.7 to -13.9 in September. Economists had forecast a rise to -14.6.

While up on the month, the indicator continued to sit well below the long-run average -11.1.

From the U.S

It was a busier day. While existing home sales figures for August were in focus, FED Chair Powell’s testimony on Capitol Hill was the main event of the day.

FED Chair Powell provided few surprises in his first speech of the week, however. Powell cited the path forward would depend on keeping COVID-19 under control and government policy moves.

The Market Movers

For the DAX: It was a relatively bullish day for the auto sector on Tuesday. Continental and Daimler rose by 1.48% and by 0.86% respectively to lead the way. BMW and Volkswagen weren’t far behind, with gains of 0.41% and 0.75% respectively.

It was another day in the red for the banks, however. Deutsche Bank fell by 1.78% following Monday’s 7.64% tumble, with Commerzbank ending the day down by 0.07%.

From the CAC, it was also a bearish day for the banks. BNP Paribas and Credit Agricole ended the day down by 0.52% and by 0.57% respectively. Soc Gen saw a more modest 0.10% loss following Monday’s 7.66% slide.

For the banking sector, the latest scandal continued to pressure European bank stocks on the day.

It was a bullish day for the French auto sector, which bucked the trend on the day. Peugeot and Renault ended the day with gains of 3.63% and 2.66% respectively.

Air France-KLM slid by 4.35% following Monday’s 7.63% slump, with Airbus SE following Monday’s 6.57% slide with a 2.68% loss.

The spike in new COVID-19 cases and fears of a reintroduction of containment measures continued to weigh on travel stocks.

On the VIX Index

On Tuesday, the VIX fell by 3.31%. Partially reversing a 7.55% gain from Monday, the VIX ended the day at 26.86.

Support came from dip-buying, with little else to provide the majors with direction following Monday’s pullback.

FED Chair Powell’s delivery also provided nothing new for investors to fret about on the day.

The NASDAQ and S&P500 rose by 1.71% and by 1.05% respectively, with the Dow seeing a more modest 0.52% gain.

VIX 23/09/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Key stats German consumer confidence figures that are due out ahead of the European open.

Later in the morning, September’s prelim private sector PMIs are due out of France, Germany, and the Eurozone.

Following some disappointing numbers from August, there will be plenty of interest in today’s stats.

Any general downward trend in the PMIs and expect the majors to come under pressure. With new COVID-19 cases on the rise and the threat of lockdown measures lingering, COVID-19 chatter will also influence.

On the geopolitical risk front, there’s also Brexit and tensions between the U.S and China to monitor.

From the U.S, prelim private sector PMIs and Powell’s 2nd day of testimony on Capitol Hill will also influence late in the day.

The Futures

In the futures markets, at the time of writing, the Dow was up by 36 points.

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

Carvana Shares Jump Over 30% as Company Eyes Record Q3 Sales and Revenue

A leading used-car retailer Carvana Co’s shares jumped over 30% on Tuesday after the company said that they aim to achieve records in performance across several important metrics, including sales and revenue, in the third quarter, following a recovery in auto sales in the United States.

Following this release, Carvana shares climbed more than 30% to $229.49 on Tuesday; the stock is up over 150% so far this year.

Carvana also said it plans to offer up to $1 billion in aggregate principal amount of senior notes, due in 2025 and 2028, Reuters reported.

Executive comments

“The momentum that we saw in the second quarter accelerated into the third, leading to record performance for Carvana in metrics that demonstrate strong progress both in growth and towards profitability,” said Ernie Garcia, Carvana founder and CEO.

“Hitting these records while continuing to provide the exceptional customer experiences we’ve become known for and adjusting to all the change that 2020 has brought us speaks to the quality of people we have at Carvana and to their tireless focus on our customers.”

Carvana stock forecast

Sixteen analysts forecast the average price in 12 months at $203.93 with a high forecast of $250.00 and a low forecast of $105.00. The average price target represents a -9.73% decrease from the last price of $225.91. From those 16 equity analysts, 12 rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

JP Morgan establishes December 2021 price target of $235 vs December 2020 price target of $190; Wedbush raised target price to $190 from $170 and Goldman Sachs upgraded their rating to buy; raising the target price to $205 from $178.

Robert W. Baird raised their target price on shares of Carvana from $148 to $195 in August. BofA Securities cut shares of Carvana from a “buy” rating to a “neutral” rating and raised their target price for the stock from $150 to $230. Piper Sandler reduced their target price on shares of Carvana from $211 to $209 and set an “overweight” rating.

Analyst views

“We believe that, as growth starts to slow, and the company is still not profitable, there will be a transition away from growth investors, and how investors think about the valuation will change. Our estimate for 2023 Retail Units Sold is ~25% lower than Consensus: (1) with US population coverage ~73%, the opportunity for market expansion is decreasing, and (2) while we expect the cohort curves to demonstrate continued improvement, there is limited room for improvement for Retail Units Sold / Market, as less mature & smaller markets are added to the footprint,” said Adam Jonas, equity analyst at Morgan Stanley, who has a price target of $232 in a bull-case scenario and $23 in the best case.

“We are modelling positive EBITDA by 2022 & positive FCF by 2023, but we remain concerned about the ability to leverage SG&A,” Jonas added.

Upside and Downside Risks

Upside: 1) Constructive third-party data on retail unit sales. 2) Gains from securitization sales SG&A leverage. 3) Additional products and services – highlighted by Morgan Stanley.

Downside: 1) 2020 & 2021 guidance. 2) Capital raise. 3) Insider selling. 3) U.S. auto and auto credit cycle. 4) Competition.

Check out FX Empire’s earnings calendar