Harley-Davidson Firing on All Cylinders

Harley-Davidson Inc. (HOG) is trading at a two-year high in Monday’s pre-market after beating Q1 2021 top and bottom line earnings estimates. The company posted a profit of $1.68 per-share during the quarter, $0.78 better than estimates, while revenue rose 29.4% year-over-year to $1.42 billion, beating consensus by more than $150 million. HOG now expects motorcycle segment growth between 30% and 35%, compared to previous guidance of 20% to 25%.

EU Escalates Trade War

The American icon also advised it would “vigorously defend its position” after a European Union decision to subject the entire HOG product line to a 56% import tariff, starting in June.  Continued trade tensions following Donald Trump’s defeat in 2020 underpinned the ruling, which may signal the end of all European operations. Even so, the company is firing on all cylinders so far in 2021, benefiting from a sales renaissance as a result of the pandemic.

Robert W. Baird analyst Craig Kennison recently summed up growing bullishness, noting “We are upgrading Harley-Davidson shares to Outperform for the first time since 2016. We like the strategic direction led by a proven leader and expect investors to get behind the change narrative embedded in the 2021 to 2025 plan. We see the potential for retail to turn positive in 2021 for the first time since 2014 — and note that lean dealer inventory should fuel a healthy replenishment cycle.”

Wall Street and Technical Outlook

Wall Street consensus has improved in lockstep with rising sales, now standing at an ‘Overweight’ rating based upon 7 ‘Buy’, 1 ‘Overweight’, 8 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $33 to a Street-high $55 while the stock is set to open Monday’s session more than $4 above the median $39.50 target. This placement shouldn’t act as a headwind because upgrades are likely to follow the bullish metrics.

The pre-market uptick marks the sixth attempt to mount resistance in the low 40s since a breakdown in the fourth quarter of 2018. A successful advance will complete a multiyear inverse head and shoulders breakout that could eventually test the 2017 high in the low 60s. However, mixed accumulation readings and shareholder anxiety in reaction to the tariffs are likely to dampen buying interest into the third quarter.

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

Disclosure: the author held no positions in aforementioned securities at the time of publication.

U.S. Market Wrap and Forecast for Wednesday

SP-500 Volatility Index (VIX) imploded on Tuesday, dropping more than 14% as Reddit favorites reverted toward historic means. The return to sanity improved risk appetites, lifting major index benchmarks toward January highs.  Broad-based buying interest characterized the constructive session, with big tech, blue chips, and small caps all gaining more than 1%. Bond yields hit two-week highs, putting pressure on gold and silver while Bitcoin gained ground.

Tuesday Wrap-Up

Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOG) got bought aggressively ahead of their post-market earnings reports. Dow component Visa Inc. (V) bounced strongly at 50-week EMA support a few days after meeting Q4 top and bottom line estimates. Gamestop Inc. (GME) got halted several times after downside and upside stretched past circuit breakers. That stock hit the lowest low since Jan. 25 during the heavy session.

Silver plunged after reversing at August 2020 resistance, closing back at late January levels. The clueless financial media overplayed the ‘new bubble’ theme earlier this week, which doesn’t jive with very routine price action in the last 12 months. Older traders observed a moment of silence after Harley – Davidson Inc. (HOG) reported a $0.44 loss per-share on a staggering 32.4% year-over-year revenue decline. That stock fell 16% during the regular session.

Looking Ahead to Wednesday

Alphabet and Amazon Q4 earnings will move Wednesday’s market, with both mega-caps expected to report record quarterly profits. Lofty expectations place a high bar into mid-week, especially with elevated U.S. unemployment and the pandemic wearing on everyone’s nerves.  Other FAANG stocks look rangebound for now, suggesting ‘buy-the-news’ reactions’ will run into selling pressure at range resistance levels.

The January ADP employment report will also impact Wednesday’s session. This monthly data release was reformulated a few years ago after posting a long string of stinkers and has been remarkably reliable since that time. In any case, no one expects improvement in U.S. employment numbers at the moment, with the local pandemic coming off ridiculously high numbers, compared to the rest of the world. However, the reaction might offer a clue to Friday’s more important Non-Farm Payrolls release.

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

Equities Sink On Global Tensions, VIX Jumps 20%; Earnings Still In Focus

The Jamal Khashoggi Killing Has Markets On Edge

Global tensions sent equities markets around the world diving for cover. Fear of slowing growth, the fallout from the US-Sino trade war, and the killing of journalist Jamal Khashoggi all played a part. Asian markets were down the most falling an average 2.5% to 3.0% at the close of the Tuesday session. Indices in the region are trading at or near long-term low levels with the Korean Kospi hitting a near 20 month low with today’s action. The Volatility Index rose more than 20%.

European markets were down an average -1.0% to -2.0% at mid-day, up off the low of the session but still at or near their own 20-month lows and indicated lower. Focus in this region is on the murder of Khashoggi which is turning into a major international event. The journalist, a self-imposed exile from Saudi Arabia, has deep ties to the US, EU and other major western powers who are now faced with the problem of how to deal with the Saudi’s now the cat is out of the bag. The Saudi’s have promised not to weaponize oil but the crisis is far from over.

The Tech Wreck

Technology stocks were hit the hardest in the EU session. Chipmaker AWS led with a loss near -25% as the companies outlook for year-end sales was not convincing enough for shareholders to stand pat. AWS released earnings yesterday delivering a near 50% increase in revenue with upbeat guidance for the final three months of the year.

Tech stocks led Tuesday’s route in both the EU and the US. US futures were indicated down an average 1.5% to 2.0% going into the opening bell and looking weak despite a round of positive earnings releases. Reports from United Technologies, Harley Davidson, Verizon and McDonald’s all beat analysts expectations on the top and bottom lines sending shares of these stocks higher in early action.

US Corporate Earnings Are Strong, Outlook OK

United Technologies and Harley Davidson were able to raise guidance, executives at HOG say stronger sales in the EU have helped to offset issues with tariffs and were a boost to earnings. Verizon’s beat was driven by better than expected subscriber growth. On the flipside, shares of Caterpillar fell more than -6.0% despite its top and bottom line beat due to poor outlook and weak guidance. The company says tariffs and trade woe are having an impact on profitability but was able to reaffirm its guidance. The problem for traders is that guidance was in a range with the lower end well below analysts consensus.

McDonald’s beat was driven by strong comp store sales. Comps in the US rose a strong 2.4%, just shy of the 2.5% estimated, but global comps rose a whopping 4.2%. Analysts had been expecting a more tepid 3.7% but strength was seen in the lead international markets, up 5.4%, and in the high-growth target market, up 4.6%. There is no economic data scheduled for today so traders will be focused on earnings and global headlines. Notable earnings after the close of Tuesday’s US session are Chubb, Texas Instruments, and iRobot.

Stock Market Rally Today, Could Erase Monday’s Over-reactive Fears

U.S. equity markets are expected to trade higher on Tuesday. Based on the overnight futures trade, there was little evidence of the same trade war concerns that drove the major stock indexes sharply lower on Monday.

The steep sell-off yesterday was apparently fueled by a report in Sunday’s Wall Street Journal detailing the White House’s plan to impose technology restrictions on China. The plan was expected to be announced later this week. Nervous traders may have over-reacted to the story which was denied by the Trump Administration later in the session. However, even the issuance of the denial was not with controversy.

Treasury Secretary Steven Mnuchin said in a tweet Monday that a report from the Wall Street Journal about the Trump administration planning to curb Chinese investment in U.S. tech was “fake news.” Mnuchin added, however, that those restrictions will apply to “all countries that are trying to steal our technology.”

Later during the trading session, Peter Navarro, a trade adviser to President Trump, told CNBC there were no plans on imposing investment restrictions on China or other countries. He also said that stock market investors were over-reacting to such fears.

Usually when these situations arise, the markets take care of any discrepancies fairly quickly so I will assume that a mild stock market recovery will indicate that there is some truth in the matter, but maybe the article went a little overboard. However, a full recovery of Monday’s losses, even if it takes a couple of days should raise some questions about irresponsible journalism by the Journal. We’ll be watching to see if this story pans out.

Since the WSJ story specifically mentioned Chinese investments in U.S. technology companies, the tech-driven NASDAQ Composite was hit the hardest, led by steep losses in chipmaker companies and in Netflix which posted its worst day in 2 years.

This isn’t the first time that the U.S. has taken measures to prevent a foreign country from taking a major stake in U.S. companies. Years ago, Congress took measures to prevent China from buying up shares of Union Oil. And just recently after the major oil spill in the Gulf of Mexico, China could’ve bought BP Amoco on the open market then taken over all of its oil rigs in U.S. territory. This move was also prevented.

Harley Controversy

And as far as Harley is concerned, this isn’t a blow to the “Make America Great Again Campaign” as some suggest. This is a business-based decision in reaction to tariffs imposed by the European Union. According to reports, Harley plans to move some of its production to Europe to avoid excessive tariffs on imported motorcycles into Europe.

Did you even stop and wonder why they have production facilities in Europe in the first place, after all it is an American icon? It’s because they wanted to avoid tariffs imposed by the European Union. Yes, they build motorcycles in Europe in order to avoid tariffs created so that European companies like Triumph can sell more bikes than the American-based Harley Corporation.

Just a Thought…

Isn’t one of the arguments for the use of Bitcoin to avoid excessive bank wire fees and to have a free-flowing means of exchange available to everyone? If so then why, so much criticism of the U.S. demand for nearly the same thing?

These critics of the Trump administration’s demand for access to basically closed markets is essentially the same as the bitcoin argument. Yet, it continues to get criticized for “trying to bully the global marketplace”.

Tariffs and the threat of tariffs may be shaking up the markets at this time, however, I haven’t seen any evidence of a speculative bubble, excess energy consumption, price manipulation, and Ponzi and pyramid schemes.

Equities and USD Rebound in Risk Adverse Markets, Trade War Fears in Focus

US Company Harley Davidson has announced plans to shift some production out of the US in order to avoid paying tariffs when exporting its products into the EU. This is a blow for Presidents Trumps trade policy and is a bell weather for the extraordinary measures businesses are having to explore in order to weather the storm as trade relations break down. Harley Davidson shares dropped 5.97% yesterday with the US 500 down to 2717.00 and the Nasdaq down 2.17% to 7044.50 as it continues to fall since the US Supreme Court ruled to allow internet sales taxes last week. The JPY is strong today with the USD weak as risk-off sentiment persists as we close the half year this weak and traders are losing positions.

German IFO – Current Assessment (Jun) was 105.1 against an expected 105.5 from 106.0 previously which was revised to 106.1. IFO – Expectations (Jun) were 98.6 against an expected 98.5 from 98.5 prior which was revised to 98.6. IFO – Business Climate (Jun) was 101.8 against an expected 101.7 from 102.2 previously which was revised to 102.3. The data showed a weakening business climate in Germany following on from the fall in the March data. This data cannot be ignored as it surveys 7,000 businesses and is a leading indicator of economic direction. EURUSD moved higher from 1.16398 to 1.16708 after the release of this data.

Chicago Fed National Activity Index (May) came in at -0.15 against an expected 0.09 from a previous 0.34 which was revised up to 0.42. This data has now dropped below the zero level for 2018 with a high set at 0.88 in the February reading. A slip under zero can cause a market reaction but is not a worry in itself with the normal range being re-established. GBPUSD fell from 1.32869 to 1.32703 following the data release.

US New Home Sales (MoM) (Apr) were 0.689M against an expected 0.666M from 0.662M previously which was revised down to 0.646M. The data gained some ground on last month and is holding steady between 0.600M and 0.700M. Further improvement in these figures shows a pickup in confidence in the US housing market. EURUSD fell from 1.32800 to 1.32557 after this data release.

  • EURUSD is up 0.06% overnight, trading aroun1.17098.
  • USDJPY is down –0.14in the early session, trading at around 109.588
  • GBPUSD is up 0.04% this morning trading around 1.32820
  • Gold is down -0.13% in early morning trading at around $1,263.70
  • WTI is down -0.07% this morning, trading around $67.93

This article was written by FxPro