Subscriber Exodus Could Trigger Netflix Breakdown

Netflix Inc. (NFLX) is under pressure in Tuesday’s U.S. session after reports the streaming service has lost a substantial number of subscribers due to controversy arising from the August release of the French movie ‘Cuties”, which many viewers believe sexualizes young girls.  The exodus has forced some analysts to lower Q3 2020 estimates from previously impressive growth underpinned by pandemic isolation.

Netflix September Subscriber Losses

Netflix’s typical monthly churn is “impressively low” at 3.5% to 4% but that number may have risen above 5% in September as a result of cancelled subscriptions. In turn, this would translate into a quarterly loss of 28 million subscribers, or an increase of 8 million quarter-over-quarter. Unfortunately, the company has been quiet as a church mouse about the movie’s impact so investors may have to wait until Oct. 20 earnings to measure the exact impact.

Wells Fargo analyst Steven Cahall discussed the exodus in a morning note, commenting, “If we are to believe reports then NFLX faced a short-lived but potentially stark churn uptick in September due to controversy around Cuties. We think this could weigh more heavily on Q3 net adds than investors realize so we reduce our estimate for global streaming net adds from +5mm to +2.5mm (NFLX’s guidance). Given how strong Netflix is as a service we’re loathe to get too negative, but our churn analysis does imply some meaningful pressure.”

Wall Street And Technical Outlook

Wall Street consensus has been stuck in the middle for months, highlighting persistent conflict about potential upside, with a ‘Moderate Buy’ rating based upon 21 ‘Buy’ and 9 ‘Hold’ recommendations. However, five of the 35 analysts covering the stock now recommend that shareholders take profits and move to the sidelines. Price targets range from a low of $220 to a street-high $625 while Netflix is now trading more than $36 below the median $524 target.

Unfortunately for bulls, the Netflix chart is flashing warning signs as we head into the fourth quarter. The stock topped out at 568 in July and pulled back into the 460s, establishing the edges of a rectangle pattern that’s still in force, nearly 3-months later. The stock sold off to range support for the second time earlier this month and still hasn’t bounced, waving a red flag at the same time that accumulation readings have fallen to 4-month lows. This is a near ideal set-up for a breakdown that reaches the 200-day moving average near 430.

Netflix Bearish ABC Pullback Offers Discount in Uptrend

Some stocks are offering potential discounts within a large uptrend. For instance, Netflix (NFLX) is showing a bearish pullback after the price dropped about $85 (-15%) in recent trading. Could this be a support zone for price action and restart the uptrend?

Price Charts and Technical Analysis

Netflix 4 hour chart

The Netflix chart is in a strong uptrend but the current bearish pullback is likely to continue lower for the moment. Price action is below the 21 ema zone. Furthermore, price action broke below the support fractals. The main bouncing spots seem to be slightly lower. The next bearish swing could complete a wave 5 (orange) of a larger wave ABC (purple) of wave 4 (pink). The first key support zone is at the -27.2% and 38.2% Fibonacci levels. The second support zone is located around the -61.8% and 50% Fibs. Bullish candlestick patterns at these price levels could make it an interesting stock.

Only a deep break below the 61.8% Fibonacci level invalidates (red x) the bullish outlook at the moment. An unexpected bullish break above the 61.8% Fibonacci level places the stock in an immediate uptrend (blue arrows). But the space towards any upside target could be limited to $600-650. For the moment, a deeper bearish pullback could provide a sufficient discount to expect a good bounce and run up. The Nextflix earnings date is expected around the end of October.

Netflix 4 hour chart

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

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

 

Netflix Testing Bull Market High

Netflix Inc. (NFLX) reversed at an all-time high in July after lowering H2 2020 guidance and issuing conservative Q3 new subscriber estimates of just 2.5 million. A few hedge funds took profits after the news, including Stanley Druckenmiller’s Duquesne Capital and David Tepper’s Appaloosa Management. However, the streaming giant may have ‘low-balled’ estimates because folks over 60 are still hiding in their homes to avoid COVID-19. This represents an untapped market opportunity because they’ve subscribed in smaller numbers than younger demographics.

Netflix Adding Older Subscribers

Bernstein’s Todd Juenger highlighted this set-up in an August note, commenting the company “added 5.7 million subs in H1 2020, bringing total subs to 72.9 million, up from 67.7 million at the end of 2019. That’s a lot of growth for a market that was already supposedly saturated. Nielsen’s latest Total Audience Report provides some important clues into where that growth came from and where the leading streaming services sit in terms of engagement and value”.

The analyst saved the best for last, concluding “our two biggest takeaways: Netflix’s sub growth was largely fueled by older age cohorts. We have argued, adamantly, for a long time that contrary to popular belief; Netflix is not fully penetrated in North America, because of the low penetration among older age cohorts. Over time, there will be a natural growth tailwind as younger cohorts age and carry-forward their higher penetration rates. We have estimated this aging benefit to be worth 23 million U.S. subs over the next 15 years.”

Wall Street And Technical Outlook

Wall Street consensus hasn’t changed much in recent weeks, highlighting persistent conflict about potential upside, with a ‘Moderate Buy’ rating based upon 20 ‘Buy’ and 9 ‘Hold’ recommendations. Notably, 5 analysts now recommend that shareholders take profits and move to the sidelines. Price targets range from a low of $220 to a street-high $625 while Netflix is now trading more than $25 above the median 519 target.

The selloff that started in July found support above 460 while a successful August test at that level has fortified buying interest into September. The stock has now rallied within 30 points of the July high but it will take a lot of buying power to trigger a breakout and sustained trend advance toward 600. Even so, the long-term technical outlook is highly bullish, with the potential to mount the 1,000 level in the next one to two years.

Weak Technology Sector Helps S&P 500 Snap Seven-Day Winning Streak

The major U.S. stock indexes finished lower on Tuesday, reversing a mostly higher intraday trade late in the session after comments about a stalemate in talks over a fiscal stimulus deal.

The benchmark S&P 500 Index had been higher for much of the session, coming within striking distance of its closing record high from late February, before the onset of the U.S. coronavirus pandemic that triggered one of the most dramatic sell-offs in Wall Street history.

The blue chip Dow Jones Industrial Average also ended lower, and the technology-driven NASDAQ Composite retreated more than 1% and underperformed the other major indexes, as investors continued to rotate out of technology-related heavyweights and into value shares.

In the cash market, the S&P 500 Index settled at 3333.69, down 26.78 or -0.89%. The Dow Jones Industrial Average closed at 27686.91, down 104.53 or -0.42% and the tech-driven NASDAQ Composite finished at 10782.82, down 185.54 or -1.95%.

Stalemate in Coronavirus Aid Legislation Raising Concerns

U.S. Senate Republican leader Mitch McConnell told Fox News that White House negotiators had not spoken on Tuesday with Democratic leaders in the U.S. Congress on coronavirus aid legislation after talks broke down last week.

Investors have been hoping Republicans and Democrats will resolve their differences and agree on another relief program to support about 30 million unemployed Americans, as the battle with the virus outbreak was far from over with U.S. cases surpassing 5 million last week.

Wedbush trader Joel Kulina said concerns about the stalemate in stimulus negotiations added to pressure to sell recently strong performing tech stocks.

“It just feels like an acceleration of the growth unwind that started last Friday. Today marks day three of the unwind out of growth,” Kulina said. “But I’m not seeing panicking.”

Mixed News Fuels Two-Sided Volatility

A return of risk appetite fueled by encouraging economic numbers and hopes of a new coronavirus relief package and even a vaccine boosted the 500-stock index for much of the trading day on Tuesday. However, a plunge in technology shares helped snap a seven-day winning streak.

On the bullish side, the S&P 500 Index has rallied more than 52% since its March low and is 1.8% from its record high. Meanwhile, the Dow Jones Industrial Average dipped more than 100 points but at one point traded above 28,000 for the first time since February.

The loss in the Dow could have been worse if not for strength in stocks that benefit from the reopening of the economy and a COVID-19 vaccine capped the average’s losses.

The NASDAQ Composite was the underperformer, losing 1.7% as investors rotated out of technology stocks. Netflix, Microsoft, Amazon, Facebook, Alphabet and Apple all closed lower.’

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

Markets’ Weather Weekly: Сloud-Computing and Office Software Business Missed Quarterly Estimates.

Overview and trends

U.S. weekly jobless claims hit 1.4 million, the first increase since March, as spiking virus cases halt reopening plans.

Microsoft shares tumbled as much as 2.8% on Thursday after its cloud-computing and office software business missed quarterly estimates. The share price slump caused nearly $46 billion dollars erased from the company’s market capitalization. Intel Corporation (INTC) shares were trading lower yesterday despite the company reported better-than-expected second-quarter EPS and earnings results.

As a result, the tech-heavy Nasdaq Composite finished down 2.3%. The S&P 500 closed down 1.2%. It was their worst performance since June 26. The Dow (INDU) fell 1.3%, or 354 points, its worst day in two weeks.

Stocks weren’t the only assets in the red. The US dollar, as measured by the ICE US Dollar Index, fell 0.2%. The index hit its lowest level since September 2018.

So far quarterly earnings come very mixed. On positive side there are good reports and good responses to the earnings reports from IBM (IBM), Texas Instruments (TXN), Biogen (BIIB), KeyCorp (KEY), as well as yesterday’s miracle from Tesla (TSLA) and upbeat sales commentary from Best Buy (BBY).

Then again, a close candidate for why things are “bad” would be the negative responses to earnings reports from Bank of America (BAC), Netflix (NFLX), Snap (SNAP), Capital One (COF), United Airlines (UAL), and Interactive Brokers (IBKR). Microsoft (MSFT) stock sank over 2% after reporting earnings that beat Wall Street expectations in most ways except in a key business. All these stories prompt us to be extremely vigilant, resourceful and contemplative – correct instrument selection and trade direction is key to trading success through this period!

The week was full of important news. US stocks climbed on Wednesday on positive earnings numbers from Microsoft and Tesla and as traders weighed raging tensions between the U.S. and China, a potential legislative extension to unemployment benefits, and coronavirus vaccine news. Donald Trump’s administration ordered the abrupt closure of China’s consulate in Houston, and official Beijing promptly responded with its intention to close the U.S. consulate in Wuhan in a tit-for-tat game condemned by Beijing as outrageous and unprecedented.

The U.S. government has struck an agreement with Pfizer (PFE) and BioNTech (BNTX) for up to 600 million doses of their COVID vaccine candidate should it be approved. This optimistic expectation and early preparation effort have created positive sentiment in terms of thinking about light at the end of the tunnel down the road.

Trading ideas

The Gold/Silver complex has caught renewed bids this week, which was tipped off by the major gold ETF – SPDR Gold Trust – showing up on the “Doji Week” scan back on Monday. The Doji Week scan is designed to find stocks that are in narrow ranges compared to prior week’s activity that is geared up for a stronger directional move.

There are a number of Gold/Silver – related ETFs and stocks appearing on the Wide Range Breakouts, Power Up, and Overbought results today as the market gets behind their momentum against a sliding US Dollar. As investors’ classics – Barrick Gold (GLD) and Newmont Corp. (NEM) – look increasingly overvalued by both investment multiples and technically, new kids on the block, such as Agnico Eagle Mines (AEM) and Kinross Gold (KGC) look increasingly promising. The two latter stocks unveil single digit price-to-sales ratios as opposed to double-digit ones for Barrick and Newmont.

AT&T (T)

The largest American telecom AT&T (T) beat estimates by 4 cents a share, with quarterly earnings of 83 cents per share. Revenue was in line with forecasts. The company said the COVID-19 pandemic impacted results across all its businesses. Thus, WarnerMedia revenue fell 23% to $6.8 billion as the pandemic shut down film production and movie theaters. Group revenue was down 9% YoY to $41 billion, roughly in line with the $41.1 billion consensus. In contrast, AT&T’s HBO Max boasted by around 36 million active customers (including legacy HBO subscribers), picking up 3 million in the quarter. Cash from operations was $12.1 billion with free cash flow of healthy $7.6 billion.

Total dividend payout ratio remains slightly below 50%. Nevertheless, we must not forget about this telecom’s two extremely important properties: number one, it is the value high dividend stocks. And number two, it is classic defensive countercyclical stock. Given increasing odds of exacerbating recession and noting almost ridiculously cheap valuations at P/E of less than 15, dividend yield of 7% and price-to-cash-flow of just 8 (yes, this is a single-digit number, eight), at the current price level AT&T is perhaps one of very few smart medium term buys.

Vladimir Rojankovski, Grand Capital Chief Analyst

U.S. Stocks Set To Open Higher As Housing Starts Increased By 17.3% In June

Netflix Adds 10.1 Million Subscribers But Mr. Market Is Not Pleased

Netflix has recently provided its second-quarter report, missing analyst estimates on earnings and beating them on revenue.

The company reported revenue of $6.15 billion and earnings of $1.59 per share which was not sufficient enough to please the market. Netflix added 10.1 million net global subscribers but traders hoped for a truly blowout quarter.

In addition, Neftlix guided for just 2.5 million net global subscripers to be added in the third quarter.

Netflix shares were up 63% before the earnings release so it was hard to match elevated expectations.

Not suprisingly, Netflix shares found themselves under presure after the release of its earnings report and are losing about 8% in premarket trading.

Netflix report highlights a potential problem for other high-flying tech stocks – expectations are so high that it could be nearly impossible to match them.

European Leaders Try To Negotiate A Recovery Fund

European leaders are meeting to discuss a giant 750 billion euro recovery fund needed to take EU out of recession.

These negotiations will have a material impact on the world markets since failure to come up with a deal will put pressure on commodities and earnings forecasts for multinationals.

At this point, more frugal northern countries do not want to subsidize the already indebted sourthern EU members.

For example, Dutch Prime Minister Mark Rutte has stated that there was a less than 50% chance that a recovery fund deal would be reached during the current summit.

Housing Starts Grow By 17.3% In June

The U.S. has just provided Building Permits and Housing Starts data for June.

Building Permits increased by 2.1% and stay materially lower than pre-pandemic levels. This is not surprising since the economy will need more time to get back to normal while the continued surge in the number of new coronavirus cases threatens the current recovery.

Meanwhile, Housing Starts increased by 17.3% in June. This is a direct result of Building Permits’ growth of 14.1% back in May.

In short, the economic data for June tells a story of robust recovery. The key question is whether the recent problems on the coronavirus front are hurting the recovery in July.

S&P 500 futures are gaining some ground after the release of economic reports.

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

Netflix Share Price: Netflix Posts Record Revenue, but Slips on Guidance Caution

Reports out of Europe that Netflix and YouTube were reducing streaming quality due to a surge in use were the first indications that the lockdowns were having the unintended side effect of potentially breaking the internet.

These reports also helped prompt investors to re-evaluate expectations around streaming company earnings, which had markets attempting to project how much Netflix, as well as their sector peers would beat their projections for Q1 subscriber growth.

In Netflix’s case they blew through their estimates, adding 15.8m new subscribers, well above the 7m estimate.

The biggest concern for Q2 as lockdown measures were eased is whether Netflix would be able to add to these numbers, or whether we would see a Q2 drop off, on account of a pull forward effect.

In Q1 revenues came in at a record $5.77bn, while market reaction to last night’s Q2 numbers would appear to suggest that the big run higher may well have run its course, despite the company adding over 10m new subscribers to its consumer base, well above expectations of 7m.

The company also saw revenues rise to $6.15bn, again beating expectations as new users feasted on a raft of new content which included Michael Jordan’s documentary “The Last Dance”, however profits came in short of expectations of $1.81c a share at $1.59c, largely due to a one-off charge.

Despite the better than expected revenue and subscriber numbers, caution over Q3 appears to have prompted some caution as the shares slipped sharply in post market trading after the company warned that new subscribers in the upcoming quarter may well come up short due to pull forward effects starting to wane as lockdown measures continue to get eased further, as we head towards the end of the year.

Management estimates for new subscribers in Q3 were set very low at 2.5m new subscribers, well below expectations of 5.3m, while revenue estimates were set at $6.33bn, also below analyst estimates.

Netflix went on to say that it doesn’t expect the current production shutdown to impact its 2020 content slate in a significant fashion, however some new content may well get pushed back towards the back end of 2021.

On an even more positive note the company was cash flow positive for Q2, and said it was optimistic that free cash flow would break even by year end, as it continues to narrow the gap between what it spends, and what it has coming through the door in revenue.

To sum up, last night’s negative reaction to Netflix’s guidance may be more to do with much of the good news being already priced in, as well as some investors setting their expectations a little too high.

There is certainly a case for arguing that Netflix isn’t worth the high valuation assigned to it by the markets, however one can’t argue the fact it is number one in its field by some distance, and continues to set the bar, as far as its peers are concerned. Netflix has still had a stellar year so far in terms of new subscribers so it’s completely understandable for management to reset expectations a touch, given that in the space of two quarters, the company has added nearly as many subscribers as they did in 2019, when they added 27.83m new customers

Netflix management appears to be being prudent in resetting market expectations, given recent gains in the share price, while they also announced that chief content officer Ted Sarandos was being elevated to co-CEO alongside Reed Hastings. Whether that is a wise move or not depends on your view about the wisdom of having two CEO’s.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

European Markets slip Ahead of the ECB

China Q2 GDP showed a 11.5% rebound, more than reversing the -10% fall in output seen in Q1, suggesting a nice v-shaped recovery in economic activity. The annualised number recovered to 3.2% from -6.8%.

If you had any doubts about the accuracy of China’s GDP numbers before this morning’s announcement, these figures only serve to reinforce that scepticism, as they appear to completely diverge from most of the data that has come out of China since April. In terms of the trade data, both imports and exports have been weak, while retail sales have also struggled.

Retail sales have declined in every month, by -7.5%, -2.8% and -1.8% in June, and with the Chinese consumer now making up around half of China’s economic output, I would suggest these numbers in no way reflect the real picture regarding China’s economy at this moment.

After yesterday’s strong session, markets here in Europe have taken their cues from the weakness in Asia markets and opened lower, as some of the vaccine optimism of yesterday starts to taper off.

On the results front Ladbrokes and Coral owner GVC Holdings have fallen back after reporting a decline in group net gaming revenue of 11%, in the first half of the year, largely down to the suspension of sporting events. The biggest falls in like for like revenues were in the UK and Europe with sharp drops of 86% and 90% in Q2, largely down to the wholesale closure of stores, though with the re-opening of shops in June these numbers are now starting to pick up again.

On the plus side, helping offset that weakness online gaming revenue rose, rose 19% in H1, with a 22% rise in Q2, with a strong performance in Australia. Management said they expect first half earnings to be within the range of £340m-£350m, while CEO Keith Alexander is set to retire and will be replaced by Shay Segev.

Energy provider SSE has said that coronavirus impacts on operating profits are in line with expectations, with profit expected to be in the range of £150m and £250m, though this could well change. The company has said it still expects to pay an interim dividend of 24.4p in November, in line with its 5-year plan to 2022/23.

In terms of renewable output, this came in below plan, but was still higher than the same period a year ago.

Purplebricks shares are higher after announcing the sale of its Canadian business for C$60.5m to Desjardins Group

Aviva announced that it has completed the sale of a 76% stake in Friends Provident to RL360 for £259m.

Royal Bank of Scotland also announced that from 22nd July 2020 it would henceforth be known as NatWest Group, subject to approval as it strives to draw a line under the toxicity of the RBS brand. This toxicity has dogged the bank since the 2008 bailout, along with the various scandals, around rate fixing, PPI and the GRG business, that have swirled around the bank since then. Investors will certainly be hoping so given the current share price performance, and hope that the change in name isn’t akin to putting lipstick on a pig.

Consumer credit ratings company Experian latest Q1 numbers have shown a large fall in revenue growth across all of its regions with the exception of North America, and which helped mitigate a lot of the weakness elsewhere.

The euro is slightly softer ahead of this afternoon’s ECB rate decision, which is expected to see no change in policy. At its last meeting the European Central Bank hiked its pandemic emergency purchase program by another €600bn to €1.35trn, with the time horizon pushed into the middle of June 2021. The ECB still needs to formally respond to the challenge of the German court irrespective of its insistence it is covered under the jurisdiction of the European Court.

Even where Germany is concerned optics are important, particularly if the ECB wants to be seen as a responsible arbiter of the economy across all of Europe, and the PEPP still remains vulnerable to a legal challenge, due to its difference with the previous program. The bank could also indicate if it has any plans to start buying the bonds of so called “fallen angels”. These are the bonds of companies that were investment grade, but have fallen into “junk” status as a result of the pandemic.

This morning’s UK unemployment numbers don’t tell us anything we don’t already know. The ILO measure came in at 3.9% for the three months to May, however the numbers don’t include those workers currently on furlough, and while a good proportion of these could well come back, there is still a good percentage that won’t.

On the plus side the reduction in jobless claims from 7.8% to 7.3% suggests that some workers did return to the work force in June, as shops started to reopen, however the number was tiny when compared to the claim increases seen in April and May, which saw the May numbers revised up to 566.4k.

To get a better idea of where we are in the jobs market the ONS numbers do tell us that there are now around 650k fewer people on the payroll than before the March lockdown, and that number is likely to continue to rise as we head into the end of the year and the furlough runs off.

The pound is little moved on the back of the numbers, while gilt yields have edged slightly higher.

US markets look set to take their cues from the weakness seen here in European markets, with the main attention set to be on the latest June retail sales and weekly jobless claims numbers.

Retail sales are expected to rise 5% in June, some way below the 17.7% rebound seen in the May numbers which reversed a -14.7% fall in April. The strength expected in the June number seems optimistic when set aside the employment numbers, and the 13m people still not working since March. This suggests that this number could well be highly fluid and while a lot of US workers have managed to get their furlough payments, it doesn’t necessarily follow that they will spend it.

Weekly jobless claims are still expected to be above the 1m mark, with a slight reduction expected to 1.25m from 1.31m. Continuing claims are expected to fall further to 17.5m, however these could start to edge higher in the coming weeks as US states issue orders to reclose businesses in the wake of the recent surge in coronavirus cases.

Twitter shares lost ground lost night after the bell as it became apparent that the accounts of high profit individuals like Elon Musk, Warren Buffet and former US President Barack Obama were hacked by a bitcoin scammer. All verified accounts were shut down as a result as Twitter scrambled to get on top of the problem. It’s difficult not to overstate how embarrassing this is for Twitter given that the blue tick offers certainty that the user of the account is the person they claim to be. To have them hacked is hugely embarrassing, and undermines the integrity of the whole blue tick process.

American Airlines shares are also likely to be in focus after the company announced that 25,000 jobs could be at risk, when the furlough scheme runs its course. United Airlines has already said it could cut up to 36,000 people, up to 45% of its workforce.

Netflix Q2 earnings are also due after the bell with high expectations that the company can build on its blow out Q1 subscriber numbers of 15.8m. Q2 is expected to see 7m new subscribers added.

Bank of America is also expected to post its latest Q2 numbers with the main attention on how much extra provision for bad loans the bank will add to its Q1 numbers.

Dow Jones is expected to open 160 points lower at 26,710

S&P500 is expected to open 18 points lower at 3,208

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

By Michael Hewson (Chief Market Analyst at CMC Markets UK)

Europe Set for Negative Start, US-China Tensions Rise, US Tech Giants Fell

Pfizer and BioNTech are working on four drugs that they are hoping will go on to be coronavirus vaccines, and the FDA put two of the four on a fast track for approval. At the back end of last week, BioNTech said they could receive approval as early as Christmas, but in light of yesterday’s news, it might even be sooner.

European equities closed higher and US stocks got off to a good start on the back of the news. The FDA update carried on nicely from Friday’s news that Remdesivir, the antiviral drug produced by Gilead Sciences, can reduce the fatality rate in coronavirus sufferers by 62%. In the past couple of trading sessions there was a feeling that big pharma stands a chance of taking on the virus.

That being said, many countries are still battling against Covid-19. There were in excess of 60,000 new cases yesterday in the US, while there were 312 deaths. The infection rate remains high, but at least the fatality rate is relatively low. The situation in Florida is getting worse as the growth in the number of new cases was 4.7%, while the seven day average was 4.4%.

Robert Kaplan, the head of the Federal Reserve Bank of Dallas, issued a mixed statement yesterday. The central banker expressed concerns in relation to the infection rate, and he said the Fed might be required to do more should assistance be needed. Mr Kaplan also said the Fed might row back on its stimulus packages should the economy improve.

The NASDAQ 100 set a fresh record high yesterday, a few hours into the trading session. The bullish run didn’t last long as the tech focused index finished down more than 2%, and the S&P 500 closed down nearly 1%. The usual suspects – Apple, Amazon, Netflix, Facebook and Google’s parent, Alphabet – all set all-time highs, but finished lower.

US earnings season will kick-off today as the latest quarterly numbers from JPMorgan, Wells Fargo and Citigroup will be posted. In April, the major banks collectively put aside more than $25 billion for provision for bad debts, the view is that the rate of loan defaults will surge on account of the pandemic.

Last month, the Fed carried out a stress test, and in one extreme scenario, the central bank cautioned that total bad debts provisions could be $700 billion. Dividends will be in focus as the Fed said that pay-outs must be capped at current rates, and there has been speculation that dividends could be cut in an effort to conserve cash.

It was a mixed day for commodities yesterday. The slide in the US dollar helped gold. Silver, copper and palladium were also helped by the move in the greenback, and the overall feel-good factor helped the industrial metals too. Oil on the other hand lost ground as there was talk that OPEC+ are looking to taper off the steep production cuts that were introduced in May. Last month WTI and Brent crude hit three month highs, but they failed to retest those levels since, because of the pausing of the reopening of economies.

Overnight, China posted its trade data for June. Imports were 2.7%, and economists were expecting -10%, keep in mind the May reading was -16.7%. Exports came in at 0.5%, and the consensus estimate was -1.5%, while the May reading was -3.3%. The rebound in imports and exports points to a turnaround in the global economy. It is possible the positive exports reading was largely because of Western government’s demand for personal protective equipment.

Rising tensions between the US and China in relation to Beijing’s territorial claims in the South China Sea has weighed on sentiment. Hong Kong is reintroducing tougher restrictions and a rise in coronavirus cases in Victoria, Australia, has impacted the mood too. Stocks in Asia are in the red, and European markets are called lower.

At 7am (UK time) the UK will release a number of economic reports. The GDP reading for May on an annual basis is tipped to be -20.4% and that would be an improvement on the -24.5% posted in April. The monthly reading is expected to be 5.5%, and keep in mind the April reading was -20.4%. UK industrial output, manufacturing output and construction output are expected to be 6%, 8% and 14.5% respectively.

At the same time, the final reading of German CPI for June will be posted and the consensus estimate is 0.8%.

The German ZEW economic sentiment report for July is tipped to be 60, and that would be a dip from the 63.4 recorded in June. It will be released at 10am (UK time).

Eurozone industrial production will be announced at 10am (UK time) and the May reading on a monthly basis is tipped to be 15%, and that would be a huge rebound from the -17.1% posted in April.

US headline CPI is expected to rebound to 0.6% from 0.1% in May. The core reading is tipped to be 1.1% and that would be a fall from the 1.2% that was posted in May.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD – has been in an uptrend recently, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2432, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bullish reversal, and if it moves higher it could see it target 0.9067 or 0.9239. A break below the 50-day moving average at 0.8949, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 78 points lower at 6,098

DAX 30 is expected to open 239 points lower at 12,560

CAC 40 is expected to open 91 points lower at 4,965

By David Madden (Market Analyst at CMC Markets UK) 

Europe Set to Rebound, US Jobs Data on Radar

Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase. As of yesterday, the number of confirmed cases in the US exceeded 3 million. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.

US-China tensions were doing the rounds yesterday. The decision by the Chinese government to introduce the national security law in regards to Hong Kong has sparked criticism from many countries around the world as it chips away at the principal of ‘one country two systems’.

Yesterday there was speculation the US government would hit back at Beijing by potentially undermining the Hong Kong Dollar (HKD) peg. It wasn’t that long ago that President Trump reiterated that the US-China trade deal was intact, so going after the HKD might be a useful tactic. The US leader might be hesitant about taking a very tough stance against the Beijing administration given that he’s not doing well in the polls and the Presidential election is in November.

The mini-budget from Rishi Sunak, the UK’s Chancellor of the Exchequer, made big political headlines yesterday, but it didn’t have a significant impact on the markets. Mr Sunak revealed £30 billion worth of schemes that are aimed at providing assistance to the UK economy. The furlough scheme will come to an end in October and £9 billion will be allocated to job retention. There will be a temporary cut to VAT for the tourism and hospitality sector.

In addition to that, there have been incentives offered for dining out too – the combined stimulus is worth £4.5 billion. Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases. As expected, the stamp duty threshold was upped to £500,000 from £125,000. One could argue that this tactic might not be as fruitful as the government are hoping as some people are likely to be cautious about purchasing a property on account of the huge economic uncertainty.

The health crisis in the US remained in focus. Oklahoma, California and Tennessee all posted a record daily rise in the number of new cases. States like Florida and Arizona continue to see higher case numbers too. Despite the pandemic, US equity benchmarks closed higher as the tech sector continued its bullish run. Amazon, Apple and Netflix all set new record highs. Raphael Bostic, the head of the Federal Reserve of Atlanta, said that some of the fiscal support programmes might need to be extended.

Overnight, China posted its CPI data for June and the level was 2.5%, while economists were expecting 2.5%. Keep in mind the May reading was 2.4%. The PPI metric was -3%, and the consensus estimate was -3.2%, while the previous update was -3.7%. The improvement in the PPI rate might bring about higher CPI in the months ahead. Stocks in Asia are up on the session, and European markets are being called higher too.

The US dollar came under pressure yesterday. It was a quiet day in terms of economic data so the move wasn’t influenced by economic indicators. Lately the greenback has been a popular safe haven for traders, it was showing losses during the day when European indices were in the red, and when US stocks were flickering between positive and negative territory.

Gold was given a hand by the slide in the US dollar. The metal topped $1,800, and it was the first time since September 2011 that it traded above that mark. The commodity is still popular with certain traders as there are concerns that a second wave of Covid-19 could be on the cards. The metal’s positive move is being partly fuelled by the belief that central banks will maintain very loose monetary policy. Some people are afraid an inflation rise is in the pipeline, so that is influencing gold too.

At 7am (UK time) Germany will post its trade data for May, and the imports and exports are tipped to be 12% and 13.8% respectively.

The US initial jobless claims is anticipated to fall from 1.42 million to 1.37 million. The metric has fallen for the past 13 weeks in a row. The continuing claims reading is tipped to drop from 19.29 million to 18.95 million. Keep in mind that last week’s reading actually ticked up. The reports will be posted at 1.30pm (UK time).

A eurogroup video conference meeting will be held today and traders will be listening out for any potential progress being made in relation to the region’s recovery fund.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2687, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8935, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 34 points higher at 6,190

DAX 30 is expected to open 153 points higher at 12,647

CAC 40 is expected to open 46 points higher at 5,027

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

By David Madden (Market Analyst at CMC Markets UK)

E-mini S&P 500 Index (ES) Futures Technical Analysis – Lower on Corporate Bond Purchase News

September E-mini S&P 500 Index futures are trading higher shortly after the opening on Wednesday after rebounding from pre-opening losses. Shares of major tech companies such as Apple and Microsoft gained 2% and 1.7%, respectively. Netflix and Alphabet both climbed at least 0.8%.

Names that would benefit from the economy reopening turned around and added to the gains. Carnival Corp, Norwegian Cruise Line and Royal Caribbean gained 2.4%, 1.7% and 2.3%, respectively. Retailer Kohl’s climbed more than 5%.

At 14:57 GMT, September E-mini S&P 500 Index futures are trading 3152.75, up 16.25 or +0.54%.

Heightened volatility remains at the forefront with the economic data continuing to indicate a V-shaped recovery, while the rise in COVID-19 cases suggests this is the beginning of new economic headwinds.

“No one’s denied we’ve had a huge jump in cases in certain hot spots,” Kudlow said Wednesday. However, “one cannot rule out:  There’s a lot of scenarios here. We really don’t have any real experience in econometrics modeling for this type of thing. Because so much is generated by the virus. At the moment, we’ve created 8 million new jobs the last couple of months…Virtually every piece of data shows a V-shaped recovery.”

There is breaking news that the Fed is limiting the amount of its corporate bond purchases. This news is bearish.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, however, momentum may be starting to shift to the downside with the formation of the potentially bearish closing price reversal top on Tuesday.

A trade through 3184.00 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through 2983.50.

The closing price reversal top will be confirmed by a break through yesterday’s low. This won’t change the main trend, but it could lead to a 2 to 3 day correction.

The first downside target zone and potential support is 3107.00 to 3072.00.

The second downside target is the 50% level at 3053.75.

Daily Swing Chart Technical Forecast

A confirmation of the closing price reversal top will signal that the selling is greater than the buying at current price levels. If this continues to generate enough downside momentum then look for a minimum break to 3107.00.

We could see a technical bounce on the first test of 3107.00. However, it is also the trigger point for an acceleration to the downside with 3072.00 and 3053.75 the next potential downside targets.

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

Concerned on Parts of Tech Sector, But Sees Continued Growth Tied to Two Megatrends: Fidelity

The recent recovery in stock markets has been at odds with economists maintaining a gloomier global economic outlook. The rally is largely driven by the optimism of economic recovery and a much stronger recovery in the technology sector.

The S&P 500 information technology sector has returned about 10% in 2020, including reinvested dividends. Although during the tech bubble of 1990s the sector has never booked over 14% of the S&P 500’s earnings, its profit contribution surged to more than 20% of S&P 500 net income in recent years.

It is likely that technology will play a significant role across different countries and cultures in future, generating better returns in the long run for these tech companies.

“I remain concerned about the impact of recession on parts of the tech sector, but I see continued growth driven by 2 megatrends: the shift to digital experiences and the shift to cloud computing,” wrote Nidhi Gupta, information technology sector leader and portfolio manager of Fidelity Select Technology Portfolio.

Gupta said she believes in companies that are moving traditional offline experiences online, and firms that are helping these companies to make better business decisions with their data, Fidelity added.

Socialising online and doing some of the things, like watching a movie and shopping with friends, virtually is a long-term megatrend that is expected to remain for years, regardless of global economic conditions amid the COVID-19 crisis. That’s why companies like Netflix, Facebook, Amazon.com, and Latin American e-commerce provider MercadoLibre are favoured.

“A related megatrend is that digital businesses with this treasure trove of data are increasingly looking to cloud computing to draw data-driven insights to improve their businesses. This is happening, via cloud services being offered at all levels of the information technology stack—infrastructure, platform, and software,” the American multinational financial services corporation added.

“Many companies are shedding their hardware and becoming software-led in every way,” Gupta adds. Companies that provide the cloud services to help their customers make better business decisions, which include HubSpot, Microsoft, Salesforce.com, Elastic, and MongoDB – all overweighted fund positions as of May 31.

According to Tipranks’ analyst consensus by sector, 148 technology stocks out of 595 were rated “Strong Buy”, 306 were rated “Moderate Buy”, 122 were rated “Hold”, 19 were rated “Moderate Sell” while none were rated “Strong Sell”.

The Lockdown, The Fallout and the RoadMap to Recovery

Global Lockdown

In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global economy with unconventional measures to cushion the impact of the coronavirus on their economies and ease market strains.

As the virus spread quickly across the globe, the world forcing employers and employees to work remotely and rethink how to operate in a new ‘virtual reality’. Similarly, investors are faced with a new normal and are at an inflection point where there is a pressing need to reshape their investing strategies.

Oil Crash

The oil price war is over for now and the OPEC+ group has also agreed to a historic production cut in early April; though . Aa little too late considering how the situation unfolded during the month. Oil demand took the biggest hit seen in years at a time where production was reaching new highs.

The world is running out of spare room to store the fast-expanding glut that the pandemic has created. The damage initially caused by the price war was irreversible during such pandemic. The lack of storage capacity triggered a big plunge in crude oil prices.

Crude oil futures markets were in chaos, triggered by the inability of investors or traders to take on physical deliveries of oil barrels. The storage problem is so dire that investors or traders holding oil contracts are willing to sell their contracts at a loss, causing crude oil futures to turn negative for the first time in history.

A situation of more sellers than buyers.

On April 2020, WTI futures for May delivery traded at around negative 37 for the first time ever, reflecting the urgency of sellers to offload their contracts to avoid taking physical deliveries given the pandemic-induced circumstances.

Source: Bloomberg

What to expect in the coming months?

There is no quick fix for rebalancing the oil market. In such volatile markets, it is hard to predict what will happen with the June contract as the storage capacity will remain a primary source of concern.

Oil future prices took another blow when one of the largest oil funds, the United States Oil (USO), filed an SEC filing and revised its investment in oil future contracts to concentrate on contracts that are further out in the future.

Crude oil prices have remained under heavy selling pressure throughout the month. The near-term outlook for the oil market remains grim but investors are hopeful some recovery will take place when:

  • Production cuts will slow down the speed at which storage tanks are being filled; and
  • Major economies will ease lockdowns and activities will gradually pick up.

In the last few days, WTI for June delivery lost more than 15% and is trading at $14.26 a barrel while Brent recovered from earlier losses for June settlement and is trading at $21.42 a barrel.

GDP Contraction

The International Monetary Fund (IMF) has predicted in its 2020 World Economic Outlook that the economic impact of the COVID-19 pandemic might result in the “worst recession since the Great Depression”. The IMF expects the world economy to contract by 3% in 2020 due to the magnitude and speed of the collapse in activity following the various forms of lockdown seen across the globe.

Attention was on the GDP figures of the world’s two largest economies!

Earlier this month, China reported a deep contraction of 6.8% in GDP in the first quarter. It was not surprising given that China exercised strict lockdown measures and put a halt to activities throughout most of the quarter.

China has slowly resumed activities since the beginning of the month as the worst of the pandemic appears to be over. Manufacturing and trade data has been more upbeat which has risen expectations of a gradual return to normal if China avoids another wave of the virus.

Investors will be ending the month with the US GDP report that will show the first wave of the impact of the pandemic. After more than a decade of expansion, the US economy was expected to contract by 4% with a steeper contraction in the second quarter.

As of writing, the preliminary figures show a worse-than-expected contraction of 4.8%, which is the first sharpest decline since the Great Recession.

The figures echoed the IMF warnings!

Earnings Season

Earnings results were widely expected to highlight the pain inflicted by the coronavirus-induced crisis. Even though investors were expecting a tough earnings season with withdrawn forecasts, confusion and uncertainties about the 2020 outlook, the quarterly results are also meant to reveal how certain industries are affected by the virus and how those insulated from the virus are managing the pandemic.

Everything about the pandemic is unpredictable and therefore, companies in every sector are facing the challenges to communicate their guidance. Companies within certain sectors will perform worse than others.

Financials

The earnings season kickstarted with major US banks. As widely expected, banks like JP Morgan, Wells Fargo, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley all reported a significant drop in profits. Overall, the banks made significant provisions for credit losses and saw major declines in asset management revenues.

Banks like Goldman Sachs and Morgan Stanley have flared better and their share price is currently up by 15% or more.

Communication Services

Our attention move to the big tech giants like Alphabet, Facebook and Netflix which have been reclassified to the communications sector in the last few years.

Netflix was among the first few to report its quarterly results. The company reported a $5.8B in revenue with a year-on-year growth of 27.6%. The number of subscribers came above estimates and more than double its target with 15.77 million paid subscribers. The substantial growth came in March when the lockdown and social distancing measures forced many more households to join the TV and movie-streaming service.

However, the company warned that revenue and growth might decline mostly due to probable lift of the confinement measures, a stronger US dollar that is impacting international revenue growth and the lack of high-quality content following the pause in production. Its share price reached a high of around $440, but as of writing, it is currently trading at $411.

Alphabet, Google’s parent company, issued its quarterly results after the bell on Tuesday. The company reported an increase of 13% in revenue for Q1 2020, compared to a 17% increase for the same quarter a year ago and earnings of $9.87 per share. Based on expectations, it was a miss on earnings. However, the company has performed well given the challenges and is cautiously optimistic tones for the second quarter. Alphabet’s share price rose by almost 9% on Wednesday.

Facebook – The social networking giant reported earnings of $4.9B or $17.10 per share for Q1 2020 compared to earnings of $2.43B or $0.85 per share in Q1 2019. The company doubled its earnings. Similarly to its peers, Facebook warned of the unprecedented uncertainty and withdrew its revenue guidance for the rest of the year. Its share price jumped by 6% to trade at $194.20.

Both Google and Facebook have seen a significant reduction in demand for advertising, but the companies still managed to stay massively profitable and adapt in a coronavirus-fueled environment.

Tech Sector

Microsoft released strong results in the third quarter of its fiscal year 2020. Overall, COVID-19 has had a minimal net impact on total revenue. As people around the world shifted to work and learn from home, there was a significant increased in demand for Microsft’s Cloud business to support remote works and learning scenarios. Compared to the corresponding period of last fiscal year:

  • Revenue was $35.0 billion and increased 15%
  • Operating income was $13.0 billion and increased 25%
  • Net income was $10.8 billion and increased 22%
  • Diluted earnings per share were $1.40 and increased 23%

Microsoft did not only top revised COVID-19 estimates but also the earnings that were expected back in January before the coronavirus crisis.

All eyes will be on Apple Inc. which will report earnings on Thursday, April 30, 2020 after market close. Apple’s conference call to discuss second-quarter results will be held on the same say at 2:00 p.m. PT / 5:00 p.m. ET.

Consumer Discretionary

Unlike the consumer staples sector which includes companies that produce or sell essential products, consumer discretionary stocks are mostly companies that do not manufacture or sell essentials. The various forms of lockdowns have left many people without employment. For example, the US economy lost around 20 million jobs over the last few months. It took the US like a decade to add those jobs in the economy.

Amazon.com Inc has always stood out from the lot because of its status as a leading e-commerce retailer. Investors will closely watch its earnings reports for guidance. The company Amazon.com, Inc. will hold a conference call to discuss its first quarter 2020 financial results on April 30, 2020 at 2:30 p.m. PT/5:30 p.m. ET.

Stock Market

Worldwide sharp contractions in the manufacturing sectors, warnings of economic contraction and fears of a recession in the month of April have created panic and volatility in the financial markets.

A look at the All-Country World Index shows that global equities are poised for their biggest monthly gain since the Great Recession. The biggest driver is the unprecedented and unconventional actions by central banks combined with massive fiscal stimulus.

Global equities are surging even though economic data is painting a different picture.

Towards the end of the month, some positive developments on the novel coronavirus cases and the possibilities of earlier opening plans of certain major economies has driven markets higher. Mega-cap stocks like Microsoft, Amazon, Facebook and Google have also contributed to lifting sentiment and drove the rally while smaller-cap companies are bearing the brunt of the pandemic.

The Reopening Plans

There is still hope for the economy despite the tough circumstances. V-shaped or U-Shaped Recovery? New infections have slowed down but there is still no vaccine and economies are at risk of a new wave of infection.

A vaccine could have increased expectations of a swift recovery like a V-shaped immediate recovery in the third quarter or a U-shaped recovery with stability more towards the second half of the year.

However, at the moment, governments are easing lockdown restrictions and investors will be back to a New Normal to replace the current “normal”. The economy is trapped in an unusual type of recession created by the novel coronavirus.

The roadmap to recovery will be progressive and dependent on the governments approaches towards easing lockdowns. It will be different across the globe depending on how governments feel about the situation and the risk of a second wave of the virus.

The path to recovery will be a learning process given the unknown territory!

Follow us and keep up to date with the latest market news and analysis.

Deepta Bolaky, Market Analyst at GO Markets.

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Disclaimer: Articles and videos from GO Markets analysts are based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs.  Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice

Trade Deal Worries, Drop in Consumer Confidence Rattle US Investors

The impeachment inquiry news and worries about President Donald Trump’s political future weren’t the only events driving the price action in the U.S. equity markets on Tuesday. Investors were also influenced by potentially bearish comments on U.S.-China trade relations by President Trump, a weaker than expected consumer confidence report and continuing worries over Netflix. Falling Treasury yields also weighed on bank shares.

Trump’s Strong Words on US-China Trade Relations

U.S.-China trade relations have been relatively smooth lately with the U.S. easing tariffs and China buying soybeans. Last week’s low-level talks even went well. There has even been a little optimism in the markets ahead of the early October higher-level negotiations.

All of that came to a screeching halt on Tuesday when Trump’s strong words regarding U.S.-China trade relations derailed the market’s early strength.

“Hopefully we can reach an agreement that will be beneficial for both countries. But as I have made very clear I will not accept a bad deal for the American people,” Trump said at the United Nations General Assembly in New York.

Investors seem to want to accept any deal at this point, but Trump continues to insist on not accepting a “bad deal”. To his credit, he has been consistent.

Consumer Confidence Shaken

U.S. consumer confidence fell by the most in nine months in September, far more than expected, as Americans’ economic outlooks darkened in the face of the U.S.-China trade war, according to a private sector report released on Tuesday.

The Conference Board, an industry group, said its index of consumer attitudes fell to 125.1, from a downwardly revised 134.2 the month before. Traders were looking for a reading of 133.5.

“The escalation in trade and tariff tensions in late August appears to have rattled consumers,” Lynn Franco, Senior Director of Economic Indicators at The Conference Board, said in a statement.

Additionally, the expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, declined to 95.8 in September from 106.4 last month.

Netflix Shares Set for Worst Quarter Since 2012

The steep plunge in shares of Netflix since July continued to weigh on stock market sentiment as sellers drove the stock another 4% lower on Tuesday after several Wall Street analysts raised concern over the company’s earnings.

The company is expected to post its deepest quarterly decline in seven years after two analysts added to growing worries about an impending wave of competition from Walt Disney and other rivals.

Netflix has lost 30% since the end of June, and if that decline holds until Monday, it will have been the worst quarterly performance for the video streaming heavyweight’s shares since 2012.

Falling Treasury Yields Drag Bank Shares Lower

Shares of Citigroup fell 2.4% while Bank of America and J.P. Morgan Chase both pulled back more than 1% after the benchmark 10-year yield fell to 1.637%. Lower yields tend to drive down bank profits, making their shares less-attractive investments.

Global Stocks Drift Lower, Death Cross Looms Over S&P500, GBPUSD is Walking on Thin Ice

After the initial breakthrough on the truce in the trade wars, the U.S. and Chinese indices had lost momentum, and today are performing a moderate decline. On Tuesday morning, Futures on S&P500 are around 2775, cutting 1.8% gains from Friday down to 0.4%. Shanghai’s China A50 is 1% below peak levels at the start of the Monday’s session.

The Initial optimism is slowly dissipating, and markets are waiting for the further signals. Today no important data publications are expected, so, players’ attention will switch to technical analysis.

It is interesting that the rebound in stocks on American exchanges was led by fast-growing IT-companies (FAANG), which underwent the most serious corrections in October and November. That may be a signal for a full return of risk appetite from the market participants.

Despite the impressive increase in heavyweights, such as Apple (+3.5%) and Amazon (4.9%), S&P500 yesterday failed to develop its rebound above the previous local highs. The growth of the index above the 2815 level has fast reversed to decline, which could be a harbinger of a new index drawdown to the October-November lows. The Sell signal, according to the technical analysis, can additionally strengthen the S&P500 below 2660 by the end of the day. In this case, we will see the return under the key levels of 200- and 50-day averages, and the so-called “Death Cross”, when MA (50) crosses the MA (200) line from top to bottom.

An equally interesting situation in the GBPUSD pair. In the previous three months, its rebounds were lower: 1.33, 1.3250, 1.3170. Then it has returned to support at 1.27, from where the pair rebounded in August and November. Also, this level was an important watershed in 2017, which increases its importance. Falling under this mark can start the movement up to 1.20: local lows after Brexit. Keeping the above can be seen as a signal that investors believe in smoothly Brexit. The pair’s behavior near the key level can be influenced by the Bank of England Governor Mark Carney’s speech at the Special Treasury Committee about the UK independence.

This article was written by FxPro

Global Market Slide, Tech Wreck Drives Losses, US Market De-FAANGed

Asian Down On Global Woe

Asian markets closed down across the board on Tuesday as mounting global woe rocked the market. The Chinese ShangHai and Hong Kong Heng Seng led with losses greater than -2.0% while others in the region fared better. The Japanese Nikkei was down a more modest -1.10% despite growing weakness in the automotive sector while in Korea and Australia losses were well below -01.0%.

The Nissan board has issued a statement saying that Carlos Ghosn and another board member had been under-reporting their compensation “over many years”. The misrepresentation is material to their disclosure requirements and a violation of Japanese financial regulations, a breach that resulted in Ghosn’s arrest on Tuesday. With his arrest comes the natural question, because he’s the CEO of multiple car companies several countries have done the same thing elsewhere?

Europe Down As Tech-Wreck, Banks Lead Losses

The European market was broadly lower at mid-day on Tuesday on weakness in tech and banks. The banks were down on a combination of factors that include Brexit uncertainty, the Italian budget stand-off, slowing domestic growth, slowing global growth, and trade concerns. The sector sank despite positive results from UK lemder Cybg. The UK lender says pretax profits rose 13% in the last year, it also says management has “planned for a period of uncertainty” and sent shares down more than -10%.

Shares of Renault fell another -2.5% in early trading as the Carlos Ghosn scandal ripples through the market. Ghosn, also CEO of Renault, is likely to be ousted from his position at Renault as a result of his arrest. He may also have under-reported his compensation in France.

Tech-Wreck De-FAANG’s US Market

Tech led the global decline and was felt nowhere more strongly than among the FAANG stocks. Facebook, Amazon, Apple, Netflix, and Google all shed at least -2.0% on Monday, most shedding more than -4.0%, as fear of slowing growth hit the sector.

A report that Apple had cut orders for one of its iPhone X models sent a shockwave through the market that affected the entire supply chain and all technology related to mobile. Shares of FAANG continued their slide on Tuesday adding at least -1.0% to individual losses and plunging the group deeper into bear-market territory.

Downward pressure in retail also had the market moving lower on Tuesday morning. Misses from Target and Kohl’s had shares of those stocks down more than -10% despite positive reports from both companies.

The tech-heavy NASDAQ Composite led the major indices lower in pre-market futures trading. The index was looking at a loss of -1.58% followed by -1.10% declines for the both the S&P 500 and Dow Jones Industrial Average. Trading volume is going to be light on Tuesday, Wednesday, and Friday because of the Thursday holiday. Traders should beware of volatility, exaggerated market movements, and whipsaws.

Is the Technology Sector Going to Drive the Market Down?

The technology sector has been driving the US stock market higher for a long period of time. Now it seems like the tide has turned and the sector could start doing the opposite.

Like all other major indices in the US, the Nasdaq 100 index, which is represented by the QQQ ETF, dropped below the key 200-day moving average in late October. The following short-covering rally brought the index back to this level, but bulls failed to push the QQQ index back above and the price declined instead. Moreover, the fundamental nature of this aggressive sector seems to be changing from the buy the dip mantra to sell the rally psychology.

Moreover, all the big names, known as the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google) have been dropping sharply over the last couple of days, with Apple being the only stock still above the 200-day moving average. Since all the big names are falling, this decline appears to be structural and therefore it could continue over the next few weeks.

Investors are starting to wonder if the big companies can hold their margins and earnings if the US economy slows amid higher interest rates. Compared with other indices, the technology sector has seen the largest rise since 2008.  This suggests that it could be hit the worst should a notable correction start on the equity markets.

Last Friday’s US labor market data showed that wage growth has reached 3.1percentt year-on-year, which is the fastest pace since April 2009. This was a strong inflation signal and supported the Fed’s view to hike rates faster, rather than slower.

On the plus side, there is a bullish divergence on the daily chart between the RSI indicator and the price of the QQQ index, which could – at least from the short-term point of view – offer some support.

The main resistance remains at the 200DMA near 172.50 USD and if the index jumps beyond, bulls could be in charge again, with the next target probably at the 100DMA near 178.40 USD.

On the downside, the support could be at 165.00 and then it could move to current cycle lows at 160.00 USD. If bears push the price below this level, the downward trend would be confirmed, targeting the 150.00 USD mark.

This article was written by Peter Bukov, one of TeleTrade’s leading analysts. 

Sale of Growth Shares Demonstrates Transition of Markets to New Cycle Stage

American indices were again under pressure at the end of the day, rewriting the minimums from May on the S&P500 index. According to the results of the day, the losses amounted to 0.7%, although the amplitude of fluctuations remains elevated, reaching 3.8% in just a few hours.

Spreading fixation of profit has put the quartet FANG (Facebook, Amazon, Netflix, Alphabet) in jeopardy, and took away from their total capitalization about $600 billion from the peak values. The main driver of the weakening on Friday and Monday were the Amazon shares, that lost over 14% after a weak earnings report.

At the same time, key indices are supported during recessions, and outside of the current weakening, the trend in the stock markets shifts. The growth shares, an excellent example of which is FANG, risk giving up leadership to income stocks with good earnings and dividends.

Income-oriented equities are the focus of the market as the economic cycle ages. The next phase may be the demand for countercyclical papers, which are presented by the companies of the military-industrial complex, manufacturers of medicines and foodstuffs. But it is not so easy to predict the exact time of this switch.

It should be noted that the purchase of indices on recessions in combination with strong macroeconomic data from the USA does not allow to speak about a large-scale sale, but only about the change of priorities among the investors.

The dynamics of Asian playgrounds implicitly confirms our idea in the morning on Tuesday. Index Nikkei has added 2.2% this morning. The futures on S&P500 have grown by 0.6% this morning, and the Japanese yen (a great barometer of the demand for risks) has lost 0.8%, pointing to the persistence of global investors’ thrust for the purchases of securities.


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The dollar index is slowly gaining strength, settling in 96.50 – one step from the highs since the middle of 2017. The main reason behind this move was weakening of the euro amid fears around the political situation in Germany, where Merkel promised to resign from the post of the head of the CDU party and leave the post of Chancellor after 2021.

This article was written by FxPro

How to Trade the Trade War?

The developing trade war between the US and China has created turmoil in emerging markets, most noticeably in the form of a sell-off of the Chinese stock market and currency.

Trading the trade war is not very straightforward. Firstly, we really don’t know how it will end. It will probably be resolved eventually, but the timing will make a big difference.

The longer it lasts the more damage will be done, and that will have longer-term implications. A longer trade war may also trigger a domino effect through other parts of the global economy. If the trade war was to be resolved fairly soon, prices would normalize quite quickly.

One thing to remember is that it appears Trump is happy to keep the pressure on as long as the US stock indices continue making new highs. If volatility in the US stock market picks up, as it is now, he may be forced to soften his stance.

Several markets related to the trade war are currently very oversold, and should the impasse be resolved, sharp reversals are possible in some of these markets.

Traders should be careful of using the same approach across all emerging markets. Some markets have been caught up in the trade war, while others have deep-seated underlying problems of their own.

China

Tensions over trade began to grow between the US and China between January and May this year. In May the US began to effectively impose tariffs on certain imports from China by terminating tariff exemptions. More products were added in June and more gain in September.

The Chinese Renminbi has fallen 10% since March as the trade war has escalated. The Shanghai composite has meanwhile lost as much as 25% since the beginning of 2018.

USD/CNH Weekly Chart
USD/CNH Weekly Chart

The slide in the renminbi has to a certain extent offset the added tariffs – the weaker currency means US importers are paying slightly less before tariffs are added.

It’s worth noting that the slide in the value of the Renminbi has slowed significantly since July despite the additional tariffs with a double top potentially forming. It is possible that the Chinese Central Bank is supporting the currency to prevent capital flight, as they experienced in 2015/2016.

Not many forex brokers offer to trade in the Renminbi, but a few do. If you are looking to trade the Chinese currency you will be trading the Offshore Renminbi or CNH. The CNY is the Onshore Renminbi which us restricted and managed by the Central Bank.

Turkey

Turkey has several problems. Firstly, a series of populist policy decisions by the president eroded investor confidence, triggering a selloff of the already structurally weak Lira. This turned into a vicious cycle as much of the country’s government and corporate debt is USD denominated, and effectively rises as the Lira weakens. On top of this precarious situation, the US then imposed new import tariffs on Turkish goods.

USD/TRY Weekly Chart
USD/TRY Weekly Chart

The Turkish Lira had lost almost 46% of its value by the middle of August and is now consolidating in what could turn out to be either a continuation or reversal pattern. The benchmark equity index, the BIST100, fell as much as 30%, though it has recovered some of those losses.

The Turkish economy is one of the most vulnerable in the world, and further emerging market volatility could very easily lead to further losses for both the currency and stock market. Investors will probably want to see policy changes before a sustained recovery begins.

Argentina

Argentina had to turn to the IMF to help prop up its balance sheet in May, and this loan was recently increased to $57 billion. The Peso reached an all-time high of 41.47 against the USD, having traded at 18 in January. Last week, the Central Bank raised interest rates to 65%, indicating how serious the crisis is.

The benchmark stock index recently tested the all-time high recorded in January – though this has more to do with the inflationary effect of a weak currency than with earnings.

Argentina is one of the weakest markets and will be vulnerable to further fallout from the trade war. Traders watching the stock index should focus on the technical picture rather than trying to weigh up valuations and a fluctuating currency.

South Africa

South Africa’s economy has been under pressure for several years as a result of a scandal-ridden government. In the second quarter, the country officially dipped into a recession.

USD/ZAR Weekly Chart
USD/ZAR Weekly Chart

South Africa’s currency, the Rand, is structurally weak and was also rated by Bloomberg as one of the most vulnerable in the world. The Top40 stock index has made little ground since 2014 as political uncertainty led to an investor exodus.

A certain degree of political stability has been restored and South Africa is beginning to look more like a potential turn around play. South Africa is also a major commodity exporter and highly correlated with China’s economy. If the trade relationship between China and the US is resolved, SA may be a market to watch on the upside.

Commodities

Commodities, especially base metals like copper and iron ore are another potential play based on how things develop. If the standoff is prolonged its likely to have an ongoing impact on China’s domestic economy, which includes massive infrastructure projects. Besides metals prices, traders can also look to Australia’s large commodity exporters.

Global Tech Stocks

The original FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) have a few problems of their own. Not only are they priced for strong growth going forward, but the likes of Facebook and Google are facing growing scrutiny over issues related to users’ personal data.

The trade war has now brought a new dynamic to the sector. Chinese tech giants Alibaba and TenCent are both under pressure due to the trade war. China is also very important in Apple’s life, both as a supplier and as a customer. Ongoing pressure on China’s economy will eventually begin to impact Apple.

Summary

As you can see there are quite a few instruments that traders can use to play the trade war, either in the case of an escalation, or continuation or in the case that it is resolved. When choosing a forex broker it’s a good idea to look at the range of instruments offered so that you have the option of expressing trades through several instruments.

As was mentioned at the beginning, it’s impossible to predict how all of this will play out. Traders should, therefore, trade opportunistically and keep an open mind.

Global Shares Rise as Strong Reporting Has Returned Optimism to Markets

American markets had an impressive rally on Tuesday, triggering the growth of S&P500 and DJI indices by 2.2% during the day. The market participants’ enthusiasm was based on a strong start of the reporting season of the largest U.S. companies.

Johnson & Johnson (positive signal for household demand) and Goldman Sachs Group Inc. (good news for the banking sector) exceeded market expectations. In addition, the positive tone of the markets after their closure supported a take-off of Netflix shares. The shares of the company at the pre-bid add 12%, pulling up the quotations of other IT-Giants.

Regular statistics from the United States also managed to maintain a positive attitude. The number of open job vacancies in the United States has updated the historical record in August, the Bureau of Labour Statistics reported yesterday. Industrial production has grown for the 4th month in a row, adding 0.3% in September.

On the contrary, the data from Europe were not so bright. German Business sentiment index from ZEW fell by 14.1 points to the July lows -24.7. Uncertainty in the world trade strongly suppresses export-oriented business optimism of the country. The weak Merkel’s party results in local elections in the German regions are also exerting pressure on a single currency.


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As a result, the single currency could not catch the levels above 1.16000 dollars. On Wednesday to the beginning of the European session, EURUSD is trading around 1.1550, despite the recovery of the demand for risks, which often plays against the American currency.

On Wednesday, the publication of the Fed’s minutes following the September meeting is on the market’s agenda. The Committee is expected to maintain its bias towards a further tightening of the monetary policy, hinting at the possibility of hikes in December and several more increases next year. Although Trump does not weaken the grip, almost every day criticizing the Fed, so far these comments have not had a long-lasting impact on the stock markets and the dollar. It is likely that the markets will continue to respond more to the Fed’s comments than to the president’s statements about the dollar.

This article was written by FxPro