Wall Street Week Ahead Earnings: KKR, Walt Disney, Coca-Cola, Twitter and PepsiCo in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could hit the stock market hard over the coming months. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of February 7

Monday (February 7)

TICKER COMPANY EPS FORECAST
ACM AECOM $0.77
CHGG Chegg $0.13
HAS Hasbro $0.85
LEG Leggett & Platt $0.73
ON ON Semiconductor $0.94
THC Tenet Healthcare $1.49
TSN Tyson Foods $2.01

 

Tuesday (February 8)

IN THE SPOTLIGHT: KKR

The U.S.-based investment firm KKR & Co is expected to report its fourth-quarter earnings of $1.02 per share, which represents year-over-year growth of over 108% from $0.49 per share seen in the same period a year ago.

The company that manages multiple alternative asset classes would post revenue growth of 17% to $784.8 million. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Strong near-term growth with fundraising supercycle and GA accretion coming into earnings, but we see this reflected in the price at the current valuation for a business model with greater earnings contribution from the balance sheet (40%). While strong investment performance could drive upward estimate revisions, we have less visibility on more episodic investment income gains,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“Mgmt’s increased focus on expanding the platform with adjacent strategies and scaling successor funds should drive higher fee-related earnings (FRE).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 8

TICKER COMPANY EPS FORECAST
BP BP $1.18
IT Gartner $2.47
HOG Harley-Davidson $-0.37
LYFT Lyft $-0.46
PFE Pfizer $0.85

 

Wednesday (February 9)

IN THE SPOTLIGHT: WALT DISNEY

Walt Disney, a family entertainment company, is expected to report its fiscal first-quarter earnings of $0.68 per share, which represents year-over-year growth of over 112% from $0.32 per share seen in the same period a year ago.

The family entertainment company would post revenue growth of over 30% to $21.15 billion. The company has beaten earnings estimates in most of the quarters in the last two years, at least.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 9

TICKER COMPANY EPS FORECAST
AFG American Financial Group $2.98
CVS CVS Health $1.56
HMC Honda Motor $0.95
RDWR Radware $0.13
SGEN Seagen $-0.74
TM Toyota Motor $3.76
UBER Uber Technologies $-0.33

 

Thursday (February 10)

IN THE SPOTLIGHT: COCA-COLA, TWITTER, PEPSICO

COCA-COLA: The world’s largest soft drink manufacturer is expected to report its fourth-quarter earnings of $0.41 per share, which represents a year-over-year decline of over 12% from $0.47 per share seen in the same quarter a year ago. However, the company’s revenue would grow nearly 4% to $8.94 billion.

TWITTER: The social media giant is expected to report its fourth-quarter earnings of $0.35 per share, which represents year-over-year growth of about 8% from $0.38 per share seen in the same period a year ago.

The company would post revenue growth of over 21% to $1.57 billion. Twitter expects revenues of approximately $1.5 billion to $1.6 billion in the fourth quarter of 2021. GAAP operating income is expected to range from $130 million to $180 million, according to ZACKS Research.

With a focus on engineering and products, Twitter expects to increase headcount and costs by 30% or more in 2021. In 2021, the company expects total revenues to grow faster than expenses.

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for Twitter (TWTR) given 1) continued turnaround progress and 2) platform scarcity,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

PEPSICO: The Harrison, New York-based global food and beverage leader is expected to report its fourth-quarter earnings of $1.52 per share, which represents year-over-year growth of over 3% from $1.47 per share seen in the same period a year ago.

The U.S. multinational food, snack, and beverage corporation would post revenue growth of about 9% to $24.35 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

The company revised its organic revenue growth to 8% from 6% previously. The company estimates core earnings of $6.20 per share for 2021, compared to $5.52 in 2020, according to ZACKS Research.

PepsiCo struggles with supply-chain headwinds that have caused it to increase costs and limit its output. Investors will want to know whether the beverage company is winning this battle when it reports its financial results for the fourth quarter of 2021 on Thursday, February 10.

“For the quarter, we are expecting PepsiCo (PEP) to deliver EPS of $1.47, which implies flat YoY growth and is 4 pennies below consensus EPS of $1.51. Our $1.47 4Q21 estimate implies FY21 EPS of $6.20, which is at the low end of management’s expectation to deliver “at least” $6.20 in EPS and may ultimately prove conservative given PepsiCo’s (PEP) history of outperforming expectations. Since 1Q18, we can see that PEP’s reported EPS has come in above consensus in 14 out of the past 15 quarters, with an average upside surprise of+5%,” noted Vivien Azer, equity analyst at Cowen.

“As we are already almost a month into the new year, all eyes will be on PepsiCo’s (PEP) initial FY22 guidance. As a reminder, on the last earnings call management noted that at the time they expected FY22 performance to be in line with its stated long-term targets, which means MSD (+4-6%) organic revenue growth and HSD core constant currency EPS growth.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 10

TICKER COMPANY EPS FORECAST
AZN AstraZeneca $0.78
EXPE Expedia Group $-0.01
GDDY GoDaddy $0.41
K Kellogg $0.8
MCO Moody’s $2.3
PEP PepsiCo $1.52
TWTR Twitter $0.16
WU Western Union $0.53

 

Friday (February 11)

TICKER COMPANY EPS FORECAST
APO Apollo Global Management $1.08
D Dominion Energy $0.93
FTS Fortis $0.58
MGA Magna International $0.81

 

Why Harley-Davidson Stock Is Up By 12% Today

Harley-Davidson Stock Rallies After Announcement Of SPAC Deal For Its EV Unit LiveWire

Shares of Harley-Davidson gained upside momentum after the company announced that it will take its EV division LiveWire public via a SPAC deal. LiveWire is expected to trade under the ticker LVW.

The recent IPO of Rivian Automotive highlighted strong demand for EV producers. Investors and traders look ready to buy shares of anything EV-related regardless of valuation as they want to establish positions in the hot segment of the market.

It remains to be seen whether this trend will remain intact when the Fed begins to raise rates in 2022. At this point, investors are confident that Harley’s EV division will get higher valuation on a standalone basis.

What’s Next For Harley-Davidson Stock?

Analysts expect that Harley-Davidson will report earnings of $3.7 per share this year and $3.53 per share in the next year, so the stock is trading at roughly 12 forward P/E. This is cheap for the current market environment, but traders should keep in mind that the company’s earnings are projected to decline next year.

S&P 500 is close to all-time high levels, and the market remains focused on growth. In this environment, a cheap stock like Harley-Davidson may not get enough support from buyers if the company’s earnings are moving lower. In this light, it’s not surprising to see that Harley-Davidson stock lost upside momentum in May and has been under pressure until the announcement of the SPAC deal.

I’d also like to highlight a recent example of a similar move, when a company made an attempt to unlock value for shareholders by taking public its unit in the “hot” market segment. Intel stock enjoyed strong support after the company announced that it would take Mobileye public, but traders used higher prices as an opportunity to take some profits off the table. It remains to be seen whether Harley-Davidson stock will find itself under similar pressure, but it’s a risk that should be closely monitored.

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

SP500 Companies are Topping Wall Street Expectations

It’s hard to ignore the huge moves made by Tesla’s stock which was up over +8% yesterday after gaining +44% in October.

Earnings summary

Harley-Davidson is also starting the week with a big jump, climbing almost +8% thanks largely to the removal of EU import tariffs that were around 56%. The tariff removal stems from a deal cut between the U.S. and EU this past weekend that also partially removes U.S. tariffs on steel and aluminum imports from the EU. That in turn should help ease some cost pressures for some U.S. manufacturers, especially car makers.

More than +80% of S&P 500 companies that have reported so far have topped Wall Street expectations.

Today is another busy one for earnings with Pfizer one of the top highlights. The company’s Q3 revenue is expected to more than double from last year thanks in large part to sales of its Covid-19 vaccine. With the recent approval of its Covid vaccine for children ages 5-11, investors are anxious to hear the company’s outlook.

Another one to watch today is Zillow which has seen its stock tank more than -50% since its peak back in February. A report released yesterday showed that a majority of the homes in the company’s $1.17 billion portfolio might be underwater, the company is also having a tough time sourcing contractors and materials need to complete the cycle on the flips, something that could obviously weigh on earnings.

Economic front

The ISM Manufacturing report yesterday showed price increases continued in October with the same culprits being blamed – extreme supply chain dislocations and lack of workers. Still, manufacturing activity has expanded for 17 straight months now with new orders continuing to expand as well. That strong demand has been reflected in Q3 corporate earnings that have overall defied concerns that inflationary pressures and supply chain challenges would lead to disappointing results.

On the economic front, the U.S. Federal Reserve begins its two-day policy meeting today which will wrap up tomorrow with a press conference from Fed Chair Jerome Powell.

Wall Street expects the Fed to hold rates steady and to announce it will begin reducing its monthly asset purchases. Bulls don’t seem overly concerned, believing that supply chain dislocations and labor market challenges will begin to ease in the first half of next year, bringing down inflation pressures that could otherwise lead the Fed to implement rate hikes faster and higher than expected.

Investors today are also interested in election day results where Governor races in Virginia and New Jersey could provide a preview of how voters are leaning ahead of the 2022 mid-term Congressional elections. Republicans think they have a good chance of winning back the Senate next November as well as narrowing the gap in the House.

Wall Street Hits Records as Tesla Surges; Focus on Fed Meeting

The Dow Jones Industrial Average eclipsed 36,000 points for the first time ever during intraday trading, ending just shy of that level.

Accommodative monetary policy has been one of the key supports for the stock market, with the benchmark S&P 500 rising 22.8% so far this year.

The Federal Reserve on Wednesday is expected to approve plans to scale back its $120 billion monthly bond-buying program put in place to help the economy during the coronavirus pandemic, while investors will also be focused on commentary about interest rates and how sustained the recent surge in inflation is.

“This (meeting) is going to be a relatively big deal,” said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. “We are expecting to hear the glide path for tapering the bond purchases.”

The Dow Jones Industrial Average rose 94.28 points, or 0.26%, to 35,913.84, the S&P 500 gained 8.29 points, or 0.18%, to 4,613.67 and the Nasdaq Composite added 97.53 points, or 0.63%, to 15,595.92.

Tesla shares jumped 8.5%, helping lift the S&P 500 consumer discretionary sector about 1.5%.

Shares of the electric car maker have charged higher since the company’s market value crossed $1 trillion last week.

Among S&P 500 sectors, energy led the way, rising 1.6%, while the communications services group dropped 0.7%.

The small-cap Russell 2000 index was a standout, rising 2.7% for its biggest daily percentage gain since late August.

A survey on Monday showed U.S. manufacturing activity slowed in October, with all industries reporting record-long lead times for raw materials, indicating that stretched supply chains continued to constrain economic activity early in the fourth quarter.

With over half of S&P 500 companies having reported, third-quarter earnings are expected to have climbed 39%, according to Refinitiv IBES.

“There continues to be positive sentiment around earnings despite some high-profile misses,” said Kristina Hooper, chief global market strategist at investment management firm Invesco.

In company news, Harley-Davidson Inc shares jumped 9.1% after the European Union removed retaliatory tariffs on U.S. products, including whiskey, power boats and company’s motorcycles.

Advancing issues outnumbered declining ones on the NYSE by a 2.84-to-1 ratio; on Nasdaq, a 3.05-to-1 ratio favored advancers.

The S&P 500 posted 46 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 208 new highs and 39 new lows.

About 10.5 billion shares changed hands in U.S. exchanges, compared with the 10.3 billion daily average over the last 20 sessions.

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

(Reporting by Lewis Krauskopf in New York, Devik Jain and Bansari Mayur Kamdar in Bengaluru; Editing by Maju Samuel; lewis.krauskopf@thomsonreuters.com ; 646-223-6082; Reuters Messaging: lewis.krauskopf.thomsonreuters.com@reuters.net )

Harley-Davidson Soars After EU Drops Tariff

Harley-Davidson Inc. (HOG) is soaring in Monday’s pre-market after the United States agreed to remove section 232 steel and aluminum tariffs imposed on the European Union by President Trump in 2018. The EU reciprocated immediately and will lower their tariff on the motorcycle icon from 31% to 6%, effective January 1, 2022. The company responded by updating fiscal year 2022 guidance, lowering the tariff’s adverse impact from $200+ million to zero.

Millennials Key to Sales Growth

The stock has responded with a breakout above the 50-day moving average, marking the first time it’s traded through the barrier since July 12th. The uptick should mark the end of a 6-month decline that’s relinquished nearly 25% and given up 100% of 2021’s year-to-date gains. Even so, it’s got a long way to go to match May 2014’s high in the mid-70s and win back a legion of millennials that have lost interest in the classic Harley design.

The company expressed gratitude in a pre-market release, noting “Today’s news is a big win for Harley-Davidson and our customers, employees and dealers in Europe. Our thanks go out to President Biden, Secretary Raimundo and the U.S. Administration, for their efforts in this negotiation. We are excited that this brings an end to a conflict that was not of our making, and in which Harley-Davidson had no place. This is an important course correction in U.S.-EU trade relations that will allow us to further Harley-Davidson’s position as the most desirable motorcycle brand in the world.”

Wall Street and Technical Outlook

Wall Street consensus is likely to improve in coming weeks, adding to an ‘Overweight’ rating based upon 6 ‘Buy’, 1 ‘Overweight’, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $38 to a Street-high $70 while the stock is set to open Monday’s session just $1 above the low target. The median target at $50 looks like a reasonable upside target after the weekend agreement, setting the stage for a potential 25% uptick.

Harley-Davidson posted an all-time high near 75 in 2006 and fell into single digits during the 2008 bear market. It returned to the prior peak in 2013 and reversed once again, entering a secular decline that hit an 11-year low in the teens during 2020’s pandemic decline. Three rally waves into May 2021 stalled at the 50% selloff retracement, yielding a decline that pierced 200-day moving average in July. The stock is testing that level in the pre-market, with a breakout favoring an eventual test of the second quarter peak.

For a look at 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., EU end Trump-era Tariff War Over Steel and Aluminum

Commerce Secretary Gina Raimondo told reporters that the deal will maintain U.S. “Section 232” tariffs of 25% on steel and 10% aluminum, while allowing “limited volumes” of EU-produced metals into the United States duty free.

It eliminates a source of friction between the allies and lets them focus on negotiating a new global trade agreement to address worldwide excess steel and aluminum capacity mainly centered in China and reduce carbon emissions from the industries.

EU trade chief Valdis Dombrovskis confirmed the deal, writing on Twitter that “we have agreed with U.S. to pause” the trade dispute and launch cooperation on a future global arrangement on sustainable steel and aluminum. Dombrovskis said the deal will be formally announced by Biden and European Commission President Ursula von der Leyen on Sunday.

U.S. officials did not specify the volume of duty-free steel to be allowed into the United States under a tariff-rate quota system agreed upon with the EU. Sources familiar with the deal, speaking on condition of anonymity, have said annual volumes above 3.3 million tons would be subject to tariffs.

The deal grants an additional two years of duty-free access above the quota for EU steel products that won Commerce Department exclusions in the past year, U.S. officials said.

The agreement requires EU steel and aluminum to be entirely produced in the bloc – a standard known as “melted and poured” – to qualify for duty-free status. The provision is aimed at preventing metals from China and non-EU countries from being minimally processed in Europe before export to the United States.

Europe exported around 5 million tons of steel annually to the United States prior to Trump’s imposition of the tariffs on national security grounds.

“The agreement ultimately to negotiate a carbon-based arrangement on steel and aluminum trade addresses both Chinese overproduction and carbon intensity in the steel and aluminum sector,” White House National Security Adviser Jake Sullivan told reporters, adding that the climate and workers can be protected at the same time.

U.S. steel production, which relies heavily on electric-arc furnaces, is regarded as having far lower carbon emissions than the coal-fueled blast furnaces prevalent in China.

Biden has sought to mend fences with European allies following Trump’s presidency to more broadly confront China’s state-driven economic practices that led to Beijing building massive excess steelmaking capacity that has flooded global markets.

The deal will eliminate Europe’s retaliatory tariffs against U.S. products including bourbon whiskey, Harley-Davidson motorcycles and motor boats that were set to double on Dec. 1, U.S. officials said.

“The end of this long tariff nightmare is in sight for U.S. distillers, who have struggled with the weight of the tariffs and the pandemic,” Distilled Spirits Council President Chris Swonger said, also urging Britain to lift its tariff on American whiskeys.

RECORD STEEL PRICES

Raimondo said the deal will reduce costs for steel-consuming U.S. manufacturers. Steel prices have more than tripled in the past year to records topping $1,900 a ton as the industry has struggled to keep up with a demand surge after COVID-19 pandemic-related shutdowns, contributing to inflation.

U.S. primary aluminum producers, which had dwindled to two companies by the time Trump imposed the tariffs, will be able to maintain their investments in reviving domestic capacity because the quotas are set at very low levels, well below pre-tariff volumes, said Mark Duffy, CEO of the American Primary Aluminum Association industry group.

American Iron and Steel Institute President Kevin Dempsey said the quota arrangement will help “prevent another steel import surge that would undermine our industry and destroy good-paying American jobs.”

“We urge the U.S. and EU to take active steps to hold China and other countries that employ trade-distorting policies to account,” Dempsey added. “We also believe U.S.-EU cooperation should focus on new trade approaches to address climate change, including through development of effective carbon border adjustment measures.”

Due to its exit from the EU, Britain’s steel exports remain subject to the tariffs, as are those of other U.S. allies including Japan. The U.S. Chamber of Commerce, which opposed the metals tariffs from the start, said the duties and quotas should be dropped from “close allies.”

(Reporting by David Lawder and Andrea Shalal; Additional reporting by Jan Strupczewski; Editing by Will Dunham and Heather Timmons)

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