Occidental Petroleum Posts Loss of $8.35 billion in Q2 as COVID-19 Batters Oil Demand; Target Price $7

Occidental Petroleum, an international oil & gas exploration and production company, reported a loss of $8.35 billion in the second quarter, largely affected by the steep decline in energy prices due to significant drop in demand amid COVID-19 pandemic, sending its shares down about 6% in after-hours of trading on Monday.

The oil and gas producer said its net loss came in at $8.35 billion, or $9.12 per share, in the quarter ended on June 30, 2020, down from $635 million earnings, or 84 cents per share, a year earlier. Excluding one-time items, Occidental Petroleum lost $1.76 per share, compared with analysts’ average estimates of $1.68, according to Refinitiv IBES, Reuters reported.

“Occidental Petroleum’s 2Q EBITDAX was below our estimates on pricing but exceeded consensus. The focus will be on 2H20 guide that includes 3Q production 7% below our estimates given larger domestic declines and 4Q that is 10% below,” said David Deckelbaum, equity analyst at Cowen.

“Without asset sale clarity, Occidental’s declining asset base will be in focus, particularly as capex shifts domestically heading into 2021 w/ guided maintain capex of $2.9 billion that is in-line with our model.”

Occidental expects its oil and gas production to decline 13% in the ongoing quarter over last, and more 5% in the last quarter, to 1.16 million barrels per day. The average price Occidental received for crude oil plunged over 60% to $23.17 per barrel in Q2 as the coronavirus outbreak crushed demand for fuel.

Occidental shares slumped about 6% to $15.55 in after-hours of trading on Monday. The stock is down over 60% so far this year.

Executive comment

“We continue to make progress on our debt structure and have significantly exceeded our cost savings targets while delivering operational excellence across our business,” President and Chief Executive Officer Vicki Hollub said in a press release.

“These decisive financial and operational actions reflect our leadership as a low-cost operator, positioning us for success when market conditions improve.”

Occidental Petroleum stock forecast

Sixteen analysts forecast the average price in 12 months at $18.58 with a high forecast of $33.00 and a low forecast of $8.00. The average price target represents a 12.74% increase from the last price of $16.48. From those 16, four analysts rated ‘Buy’, six analysts rated ‘Hold’ and six rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $7 with a high of $29 under a bull scenario and $1 under the worst-case scenario. JP Morgan raised its price target to $19 from $17.

Several other equity analysts have also updated their stock outlook. Occidental Petroleum had its price target boosted by Piper Sandler to $20 from $13.00. Piper Sandler currently has a neutral rating on the oil and gas producer’s stock. Barclays decreased its price objective to $20 from $21 and set an equal weight rating on the stock. At last, SunTrust Banks increased their price objective to $25 from $13.

We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a selling opportunity. However, can sell with a target price of $7 in a worst-case scenario.

Analyst comment

“Onerous debt maturity schedule. Occidental Petroleum has $11 billion of debt due over the next three years in a backdrop of limited free cash flow and capital markets access. The risk to asset sale execution. At current commodity prices, we see risk to additional proceeds from asset sales,” said Devin McDermott, equity analyst and commodities strategist at Morgan Stanley.

“Meaningful leverage reduction is challenged at current commodity prices. We project elevated leverage (includes 100% of preferred equity) of 5-6x net debt/EBITDAX over the next two years and 4.5-5x thereafter,” the analyst added.

Upside and Downside Risks

1) Higher commodity prices. 2) Service cost deflation. 3) Asset sale execution. 4) Upside to synergies associated with the acquisition of Anadarko Petroleum, Morgan Stanley highlighted as major upside risks to Occidental Petroleum.

1) Lower commodity prices. 2) Service cost inflation. 3) Regulatory risk in Colorado and global geopolitical risk. 4) Limited asset sale execution. 5) Potential to not achieve synergy targets associated with APC acquisition, are the major downside risks.

European Equities: Futures Point to the Green ahead of Economic Sentiment Figures

Economic Calendar:

Tuesday, 11th August

German ZEW Current Conditions (Aug)

German ZEW Economic Sentiment (Aug)

Eurozone ZEW Economic Sentiment (Aug)

Wednesday, 12th August

Italian CPI (MoM) (Jul) Final

Eurozone Industrial Production (MoM) (Jun)

Thursday, 13th August

German CPI (MoM) (Jul) Final

Spanish CPI (YoY) (Jul) Final

Spanish HICP (YoY) (Jul) Final

Friday, 14th August

French CPI (MoM) (Jul) Final

French HICP (MoM) (Jul) Final

Eurozone GDP (YoY) (Q2) 2nd Estimate

Eurozone GDP (QoQ) (Q2) 2nd Estimate

Eurozone Trade Balance (Jun)

The Majors

It was a relatively bullish start to the week for the European majors on Monday. The CAC40 rose by 0.41% to lead the way, with the DAX300 and EuroStoxx600 gaining 0.10% and 0.30% respectively.

While there were no major stats to provide the majors with direction, there was plenty for the markets to consider.

Ahead of the European open, better than expected wholesale inflation figures from China supported riskier assets.

While the stats were positive, rising tension between the U.S and China pinned the majors back on the day.

Following Trump’s moves against China last week, China reacted by imposing sanctions of its own on 11 U.S lawmakers.

The good news, however, was that Beijing held back from targeting members of the U.S administration. Trade talks are reportedly scheduled for the end of the week…

From the weekend, news of Trump wielding executive powers to aid the unemployed also supported riskier assets.

The Stats

It was a quiet day on the Eurozone economic calendar. There were no material stats from the Eurozone to provide the majors with direction.

From the U.S

Economic data included June’s JOLTs job openings, which rose from 5.371m to 5.889m.

The stats ultimately had a muted impact, however, following last week’s jobless claims and nonfarm payroll figures.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Monday. Continental rallied by 3.37% to lead the way. BMW, Daimler, and Volkswagen saw more modest gains of 0.22%, 0.75%, and 0.33% respectively.

It was also a bullish day for the banks. Deutsche Bank rallied by 2.48%, with Commerzbank ending the day up by 1.43%.

From the CAC, it was a bullish day for the banks. Soc Gen rallied by 3.07%, with BNP Paribas and Credit Agricole rising by 0.94% and by 1.87% respectively.

It was also a bullish day for the French auto sector. Peugeot rose by 2.43%, with Renault rallying by 5.80%.

Air France-KLM rallied by 5.88%, with Airbus SE gaining 3.98% on the day.

On the VIX Index

It was a 7th consecutive day in the red for the VIX on Monday. Following on from a 1.94% loss on Friday, the VIX fell by 0.36% to end the day at 22.13.

While lawmakers failed to find an agreement, support came from Trump’s executive orders from the weekend, which looked to extend existing COVID-19 aid.

Tech stocks continued to struggle, however, as the markets responded to Trump’s latest move and China’s retaliation.

The S&P500 and Dow rose by 0.27% and by 1.30% respectively, while the NASDAQ fell by 0.39%.

VIX 11/08/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Key stats include August’s ZEW Economic Sentiment figures for Germany and the Eurozone.

From the U.S, the markets will also consider wholesale inflation figures from later in the day.

Away from the economic calendar, geopolitics will also influence. While tensions between the U.S and China have built, trade talks are set to continue at the end of the week. That should provide some support, assuming that there is no further rhetoric or retaliatory moves between now and then.

The Futures

In the futures markets, at the time of writing, the DAX was up by 98 points, with the Dow up by 46 points.

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

Gap Fills Suggest Market Momentum May Stall

Technical Analysis teaches us that price Gaps tend to be filled by future price action.  This is not something new for many of our readers, whom may be familiar with our mantra ‘Gaps always get filled!’.  The big Gap created near February 24, 2020, the start of the COVID-19 market collapse, has recently been filled in the SPY and the TRAN (Transportation Index).  We believe this “filling of the Gap” may be a sign that the upside market trend may begin to stall and potentially reverse.

Yesterday, we highlighted the potential for a continued upside bullish trend in the SPY pushing possibly 2% to 4% higher based on our Measured Move technique in our article entitled “President Trump Signs Additional Covid Relief – What to Expect From the Markets“.  Today, with the TRAN gapping higher to fill the February 24, 2020, price Gap, we believe the upside move may be exhausting itself and nearing a period of congestion or reversal.

GAP FILLS MAY WARN OF TREND REVERSALS

Gaps are very interesting patterns where price momentum creates a “void” on the chart – essentially where price skips a price range because of momentum.  Typically, these types of Gaps are often found in highly volatile periods of price action or strong momentum trends.  Technical Analysis teaches us that most Gaps tend to be “filled” by future price action over time.  This technical pattern should be viewed as a warning that the highest, most recent upside price Gap has currently been filled and would suggest that the markets are either going to continue to trend higher or reach an exhaustion point, stall and potentially reverse into a downside price trend.

This SPY/TRAN chart above clearly highlights the upper Gap Fill that has recently taken place with the MAGENTA Arcing area on the charts.  Both the SPY and the TRAN filled the Gap over a 4+ trading day range – with the TRAN Gapping higher on August 10 to properly fill the Gap.  We’ve also highlighted “Lower Open Gaps” that are still unfilled.  We wanted to point out that these lower gaps may become downside price targets if the trend changes into a Bearish Price Trend.

The Weekly Custom Smart Cash Index chart, below, highlights what our research team believes is an early indication that global markets are stalling in an “Island Top” type of pattern after a very clear upside price gap on July 20, 2020.  This Custom Smart Cash Index also shows how weak the upside Smart Cash price trend has become after the July 20, 2020 upside gap even though the trends in the SPY/TRAN chart, above, appear to be accelerating upward quite quickly.  We believe the difference between these trends relates to institutional investors moving away from risks near these elevated levels while retail traders are still pounding away trading the shorter-term trends.

One thing is certain, the Custom Smart Cash Index suggests price has been unable to rally above recent highs over the past 5+ weeks while the SPY and TRAN have moved dramatically higher – something seems disconnected right now.  Our research team believes the move in Gold and Silver is clearly illustrating that institutional and traditional investors are moving away from the perceived risks near these ultra-high price levels – leaving many retail traders chasing the tail end of this rally.

We are still moderately confident that the SPY will continue to attempt to move above the $337.50 level before reaching a peak in price – yet we are also keenly aware that upside potential relates to only +0.68% from current levels.  Once the $337.50 level is reached, we believe the SPY, and the US major indexes, are likely to stall and potentially reverse after completing another 100% Measured Price Move higher.  Our suggestion would be to protect open long positions and prepare for the potential breakdown in price should the “Island Top” pattern complete.  The downside potential is clearly evident by the number of Open Gaps that are present below current price levels.  Each one of these becomes a potential downside price target.

If you found this informative, then sign up now to get a pre-market video every day before the opening bell that walks you through the charts and my proprietary technical analysis of all of the major assets classes. You will also receive my easy-to-follow ETF swing trades that always include an entry price, a stop, two exit targets, as well as a recommended position sizing. Visit my Active ETF Trading Newsletter to learn more.

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

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

NOTICE : Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.

Marriott International Posts Bigger Q2 Loss as COVID-19 Hurts Demand; Target Price $108

Marriott International, an American multinational diversified hospitality company, reported a higher-than-anticipated loss in the second quarter as the COVID-19 pandemic halted international travel, with more cancellations on hotel bookings, sending it shares down about 3% in premarket trading.

The U.S. hotel operator said its second-quarter reported net loss totalled $234 million, compared to reported net income of $232 million in the year-ago quarter and reported diluted loss per share totalled $0.72, compared to reported diluted EPS of $0.69 a year earlier.

“The mixed quarterly results are likely less significant than the commentary around the improving operating environment, both of which should drive a neutral to modestly positive reaction in the shares,” said David Katz, equity analyst at Jefferies.

“We expect the evolving operating model and its interrelationship with a lower visibility demand environment to be the key driver of the shares and valuation going forward.”

Marriott said it has reopened 91% of its worldwide hotels, compared with 74% in April. On an adjusted basis, the leading lodging company reported a loss of 64 cents per share in the second quarter ended June 30, bigger than analysts’ expectation of a loss of 42 cents per share, according to IBES data from Refinitiv, Reuters reported.

The U.S. hotel operator said its second-quarter 2020 comparable systemwide constant dollar RevPAR declined 84.4% worldwide, 83.6% in North America and 86.7% outside North America. Total revenue plunged 72.4% to $1.46 billion, missing estimates of $1.68 billion.

At the time of writing, Marriott International shares traded 2.3% higher at $95.95, still down about 40% since the start of the year.

Executive comment

“While our business continues to be profoundly impacted by COVID-19, we are seeing steady signs of demand returning. Worldwide occupancy rates, which bottomed at 11% for the week ended April 11, have improved each week, reaching nearly 34% for the week ended August 1,” Arne M. Sorenson, president and chief executive officer of Marriott International, said.

“Greater China continues to lead the recovery. While the full recovery from COVID-19 will clearly take time, the current trends we are seeing reinforce our view that when people feel safe travelling, demand returns quickly.”

Marriott stock forecast

Eleven analysts forecast the average price in 12 months at $97.30 with a high forecast of $148.00 and a low forecast of $74.00. The average price target represents a 3.51% increase from the last price of $94.00. From those 11, three analysts rated ‘Buy’, seven analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $88 with a high of $149 under a bull scenario and $56 under the worst-case scenario. Evercore ISI raised the target price to $120 from $101 and Suntrust Robinson raised price target to $88 from $86.

Several other equity analysts have also updated their stock outlook. Marriott International had its price target decreased by Wells Fargo & Co to $108 from $127. The firm currently has an “overweight” rating on the stock. Barclays raised boosted their price target for the company to $105 from $92.

Analyst comment

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. We expect several $100M working capital headwinds related to timing mismatches between owners paying MAR and MAR paying out expenses, but this should be temporary,” said Thomas Allen, equity analyst at Morgan Stanley.

“With the stock trading near its historical avg multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” the analyst added.

PayPal Holdings Could Offer Low-Risk Buying Opportunity

PayPal Holdings Inc. (PYPL) posted stronger-than-expected Q2 2020 earnings in July, booking a profit of $1.07 per-share on an impressive 22% revenue increase to $5.26 billion. The accelerated transition from paper to digital payment transactions underpinned the blowout results, completing a breakout above short-term resistance in the mid-180s. The uptick reversed above 204 last week, setting up a potential low-risk buying opportunity in coming sessions.

Paypal Opens Millions Of New Accounts

Total Payment Volume (TPV) increased 29% to $222 billion while PayPal opened more than 21 million new accounts, marking the strongest quarterly growth since the company came public in 2015.  The outlook for future quarters is equally bullish, with the COVID-19 pandemic signaling a paradigm shift into contactless payment systems.  The stock could post outsized gains well into 2022, given these historic tailwinds.

President and CEO Dan Schulman discussed the bullish metrics, stating” we have seen substantial macro changes that we believe will have a lasting and profoundly positive impact on our business. The world has accelerated from physical to digital across multiple industries including retail. Merchants are embracing a digital-first strategy, and these trends have fueled the rapid rise of digital payments. These are durable and meaningful tailwinds.”

Wall Street And Technical Outlook

Wall Street rates PayPal as a ‘Strong Buy’, based upon 28 ‘Buy’ and 5 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $155 to a street-high $235 while the stock is now trading $15 below the median $209 target. The company carries a lofty 89.53 price-to-earnings ratio (P/E), lowering odds for further upgrades until Q3 performance trends become more transparent.

PayPal has posted a return in excess of 60% since breaking out above 2019 resistance near 120 in May, setting off overbought technical readings that have added fuel to the current downturn. The earnings news triggered a small breakaway gap between 184.75 and 190 while the stock is now trading near 194. Selling momentum could increase into this major support zone, signaling a ‘buy-the-dip’ trade that could book opportune profits.

Gold Is Starting Its Move

Everything good comes to its end sooner or later, and the higher one rises, the deeper one falls. These could very well apply to the current situation around PMs.

Speaking of indications pointing to the situation being excessive, let’s take a look at the USD Index.

Remember when in early 2018 we wrote that the USD Index was bottoming due to a very powerful combination of support levels? Practically nobody wanted to read that as everyone “knew” that the USD Index is going to fall below 80. We were notified that people were hating on us in some blog comments for disclosing our opinion – that the USD Index was bottoming, and gold was topping. People were very unhappy with us writing that day after day, even though the USD Index refused to soar, and gold was not declining.

Well, it’s the same right now.

The USD Index is at a powerful combination of support levels. One of them is the rising, long-term, black support line that’s based on the 2011 and 2014 bottoms.

The other major, long-term factor is the proximity to the 92 level – that’s when gold topped in 2004, 2005, and where it – approximately – bottomed in 2015, and 2016.

The USDX just moved to these profound support levels, and it’s very oversold on a short-term basis. It all happened in the middle of the year, which is when the USDX formed major bottoms on many occasions. This makes a short-term rally here very likely.

While it might not be visible at the first sight (you can click on the chart to enlarge it), the USD Index moved briefly below the long-term, black support line and then it invalidated this breakdown before the end of the week. This is a very bullish indication for the next few weeks.

We even saw a confirmation from USD’s short-term chart.

The U.S. currency is finally after a decisive short-term breakout. In fact, it’s already after two short-term breakouts. Looking at the short-term picture only, the USD’s sideways trading could be both: a double-bottom pattern, or a flag consolidation pattern. The former would be bullish, and the latter would be bearish. Based on the previous long-term chart, the bullish interpretation is stronger.

Back in March, the short-term breakout in the USD Index was the thing that triggered the powerful rally in it, as well as a powerful plunge in the precious metals market. It’s generally a good gold trading tip to monitor the USD Index’s performance.

Consequently, based on this analogy, the implications for the near term are bearish for the PMs. Especially, when we consider the fact that Gold Miners Bullish Percent Index showed the highest possible overbought reading recently.

The excessive bullishness was present at the 2016 top as well and it didn’t cause the situation to be any less bearish in reality. All markets periodically get ahead of themselves regardless of how bullish the long-term outlook really is. Then, they correct. If the upswing was significant, the correction is also quite often significant.

Please note that back in 2016, there was an additional quick upswing before the slide and this additional upswing has caused the Gold Miners Bullish Percent Index to move up once again for a few days. It then declined once again. We saw something similar also this time. In this case, this move up took the index once again to the 100 level, while in 2016 this wasn’t the case. But still, the similarity remains present.

Back in 2016, when we saw this phenomenon, it was already after the top, and right before the big decline. Given the situation in the USD Index, it seems that we’re seeing the same thing also this time.

On Friday, gold stocks declined significantly, and they moved visibly below their July 27 high, even though gold ended its Friday’s session almost $100 higher. Mining stocks’ underperformance is quite extreme, especially that it’s connected with silver’s very strong short-term performance. This is what we usually see when the precious metals market is topping.

Please note that the miners topped almost right at the vertex of the huge rising wedge pattern. Quoting our previous analysis:

(…) huge rising wedge pattern is about to form a vertex today or tomorrow. The same rule that applies to triangles has implications also here. The vertex is quite likely to mark a reversal date. Given the overbought status of the RSI (given today’s upswing, it’s almost certain to move above 70 once again) as well as miners recent unwillingness to track gold during its continuous rally, it’s highly likely in my view that this will be a top.

The downside target for the mining stocks is very far from the current price. However, if the stock market declines significantly once again, miners can indeed fall far, even if gold declines by “only” a couple of hundreds of dollars.

We marked also an interim price target that’s based on a few other techniques, with a red ellipse – at about $31 – $32. One of the techniques is the 50% Fibonacci retracement level based on the March – August rally, and the other two are the February high, and the May and June lows. That’s also where – approximately – we have the 200-day moving average. The latter is not particularly strong in case of the GDX ETF, so we wouldn’t say that it creates any significant support on its own, but it serves as a good confirmation of the other techniques.

And they’re pointing one way…

Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. The latter includes multiple details such as the interim target for gold that could be reached in the next few weeks.

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

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

U.S. Stocks Mixed As Traders Evaluate The Recent Increase In U.S. – China Tensions

Coronavirus Aid Package Negotiations Are Set To Continue

U.S. Republicans and Democrats failed to reach consensus on the new coronavirus aid package over the weekend, and U.S. President Donald Trump decided to use executive orders to extend benefits and stop evictions in absence of a comprehensive deal.

The new unemployment benefits will decrease from $600 per week to $400 per week, supporting the laid off workers but also providing them with an incentive to get back to work.

Meanwhile, Treasury Secretary Steven Mnuchin and U.S. House Speaker Nancy Pelosi have signaled that the parties were ready to re-start talks in order to find a solution for longer-term support of the U.S. economy.

There is little doubt that U.S. needs a comprehensive aid package as Unemployment Rate remains above 10% while Personal Spending may decline in case U.S. workers do not receive additional support.

China Sanctions U.S. Officials

China has imposed sanctions on eleven U.S. citizens including Senators Marco Rubio and Ted Cruz in retailiation for sanctions on Chinese officials related to the new security law in China.

Interestingly, China has recently arrested a Hong Kong media tycoon who supported the pro-democracy opposition. This arrest may trigger another round of tensions between U.S. and China.

So far, the market has mostly ignored the increasing U.S. – China tensions. It looks like traders believe that the first phase of the trade deal between U.S. and China is safe until U.S. elections in November while it’s too early to position portfolios for post-election period.

Positive Data From China Supports Stocks

China has recently released its producer prices index for July, which indicated that producer prices declined by 2.4% on a year-over-year basis compared to analyst consensus which called for a decline of 2.5%.

In June, PPI was -3%, so there are signs that producer prices are improving, which signals that China’s manufacturing sector is rebounding after the hit dealt by the coronavirus pandemic.

Data from China is seen as a leading indicator for the rest of the world since the country has managed to contain the coronavirus pandemic earlier than other nations.

S&P 500 futures are mixed in premarket trading as they are already close to all-time highs and will likely require stronger catalysts to continue their upside move.

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

Daily Gold News: Thursday, August 10 – Gold’s Sharp Downward Reversal Following Friday’s U.S. Jobs Data Release

The gold futures contract has reached yet another new record high on Friday at the price level of 2,089.20. However, the market reversed sharply lower following better-than-expected Nonfarm Payrolls release. And it closed 2.00% below Thursday’s closing price, at $2,028.00. Gold price reached the highest in history following U.S. dollar sell-off, among other factors.

Gold is 0.1% lower this morning, as the market is fluctuating following Friday’s downward reversal. What about the other precious metals? Silver lost 3.03% on Friday and today it is 0.1% higher. Platinum lost 4.29% and today it is 0.8% higher. Palladium lost 3.66% on Friday and today it’s also 0.8% higher. So precious metals are trading sideways this morning.

Friday’s Nonfarm Payrolls release has been better than expected at +1.763 million, despite Wednesday’s ADP Non-Farm Employment Change number of only 167,000.

Today we will get the JOLTS Job Openings release at 10:00 a.m. The markets will wait for tomorrow’s Producer Price Index and Wednesday’s Consumer Price Index releases.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Monday, August 10

  • 10:00 a.m. U.S. – JOLTS Job Openings

Tuesday, August 11

  • 5:00 a.m. Eurozone – ZEW Economic Sentiment, German ZEW Economic Sentiment
  • 6:00 a.m. U.S. – NFIB Small Business Index
  • 8:30 a.m. U.S. – PPI m/m, Core PPI m/m

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Qualcomm Lobbies Trump Administration to Sell Chips for Huawei 5G Phones; Target Price $115

Qualcomm Inc, a multinational semiconductor and telecommunications equipment company, is lobbying the United States government to roll back restrictions on the sale of advance components to Huawei Technologies Co. after the Commerce Department blacklisted the Chinese telecom giant, according to The Wall Street Journal report.

The Chipmaker is lobbying to sell chips to Huawei that the Chinese company would include in its 5G phones. With those restrictions, the U.S. has handed Qualcomm’s foreign competitors a market worth as much as $8 billion annually, the company said in the presentation, the WSJ said.

“We are very positive about Qualcomm’s competitive positioning and the strength of 5G, which is continuing its rollout globally. We raise our target price to $130, 20x our FY21E as the company continues to overachieve expectations. Our rating and target price assume that the S&P 500 remains unchanged over the next 12 months,” said Louis Miscioscia, equity analyst at Daiwa Capital Markets America.

Qualcomm stock forecast

Twenty-one analysts forecast the average price in 12 months at $115.12 with a high forecast of $137.00 and a low forecast of $90.00. The average price target represents a 6.35% increase from the last price of $108.25. From those 21, 13 analysts rated ‘Buy’, seven analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $121 with a high of $139 under a bull scenario and $58 under the worst-case scenario. Qualcomm had its price target lifted by Royal Bank of Canada to $106 from $81. They currently have a sector perform rating on the wireless technology company’s stock.

Several other equity analysts have also updated their stock outlook. Deutsche Bank lifted their price target to $115 from $100 and gave the stock a buy rating. Canaccord Genuity lifted their price target to $115 from $102 and gave the stock a buy rating.

We think it is good to buy at the current level and target at least $115 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“We see an improvement in smartphone demand in 2H20 after bottoming 1H20 due to Covid-19. We also see 5G adding greater dollar content and supporting industry-wide handset volume growth. QCOM’s leadership in cellular technologies (3G/4G/5G) puts the company in a favourable position to maintain leading market share,” said Joseph Moore, equity analyst at Morgan Stanley.

“The potential elimination of a major competitor in the Chinese market, HiSilicon, should benefit QCOM as Huawei currently does not pay royalties. To the extent competitors that do pay royalties are able to pick up market share, that would be beneficial for QCOM,” the analyst added.

President Trump Signs Additional COVID Relief – What To Expect from the Markets

Up until the end of the last week, Republicans and Democrats were locked in heated negotiations regarding the size and scope of pending COVID-19 relief efforts. Our researchers had little hope that any negotiations would be successful given the two sides were so far away from one another in terms of wants and wishes.

On Saturday, August 8, 2020, President Trump signed a new Executive Order (and memorandums) to provide additional relief from the coronavirus that continues to spread in the US and around the world. These measures provide for as much as $400 in enhanced unemployment payments, and also offer Americans with temporary payroll tax relief, student loan deferments, and assistance to homeowners and renters.

NEW EXECUTIVE ORDER – WHAT TO EXPECT

The markets, meanwhile, continued to “Melt-Up” over the past few weeks with the SPX500 briefly reaching into new all-time high territory before selling off on Friday.  In all likelihood, given news of the Executive Orders issued by President Trump yesterday, the markets will likely view this a reprieve from the mounting pressures that lie just under the surface of the US economy.

We believe there is a very strong likelihood that the US and global markets will interpret the newly signed relief efforts positively, resulting in a strong potential for a continued “melt-up” over the next few days/weeks.  Investors and traders have been banking on the fact that the US Fed and Congress would do everything possible to support the US economy and the millions of displaced workers who find themselves suddenly unemployed.

We want to point out there is a huge unknown factor that is lurking just below the surface of the sky-high market valuation levels – those individuals who have entered a forbearance or deferment programs designed to alleviate the economic and accounting collapse associated with the COVID-19 virus event.  Quite a bit of this very unusual effort has been detailed in this Wolf Street article where the author itemizes dangers within the household credit markets.

The reality is grim: hundreds of billions in student loans, auto loans, and mortgages have been deferred, while the number of unemployed jumped to 32.1 million at the start of August.  Instead of facilitating these losses through traditional channels, new forbearance and deferment programs, including that from these latest Executive Orders, have shifted these extensive, looming liabilities into the “performing loans” category on banks’ balance sheets so everything seems rosy for investors.

We believe we are witnessing the most incredible economic phenomena unfolding since the roaring 20s. We have gotten to a point where traditional accounting doesn’t seem to matter as long as the ship is still floating.  Put a fresh coat of paint on it and call it good – who cares about fundamentals and whether the ship is structurally sound or not.

For skilled traders, this is one of the most challenging, yet exciting, times to be in the market.  We are navigating a new open sea where the conditions are changing almost every week.  Gold and Silver have already started screaming that risks and excesses are FULL-TILT.  Daily volume is starting to slow down on many charts and many of the major indexes are nearing the February 2020 highs.  The markets are either going to continue to melt-up for a while or digest this new COVID-19 relief package as a real concern for what the markets will look like near the end of 2020.  Our researchers believe the “melt-up” scenario is the most likely outcome, but we don’t believe it will last more than two to three weeks before reality sets in.

TRANSPORTATION INDEX CONSOLIDATION AND BREAKOUT PATTERNS

The Daily TRAN/SPY chart below highlights the consolidation and breakout rally mode that has continued to set up in both the TRAN and SPY.  We believe the current rally may continue for a few more days before another consolidation pattern sets up.  We’ve discussed “measured moves” as a common technical analysis technique.  The Transportation Index has moved 1825 to 2000 points in each of the three upside measured moves from the March 20 bottom.  Each of these moves has happened after a consolidation breakout pattern.  Currently, the TRAN has already moved in excess of 1900 points from the last consolidation breakout pattern.  Thus, we strongly believe a further melt-up may only offer 100 to 250 upside points before a new consolidation pattern begins.

The Weekly TRAN/SPY chart below highlights similar longer-term consolidation and breakout patterns that seem to present very real opportunities for SPY traders.  When the TRAN enters a longer-term consolidation period, then breaks out to the upside, there is often a larger upside move in the SPY that is likely to follow.  Each of these upside price moves in the SPY seems to total $25 to $35 of upside price activity before a new peak sets up.  If a similar type of price move continues from the current upside price breakout, then the upside SPY target level should be near $340 to $350 where a new peak will form.  This is only $5.50 to $15.50 away from current SPY price levels (+1.75% to +4.5% higher).

We suggest traders expect a continued moderate “melt-up” after President Trump’s Executive Order actions on Saturday with very clear targets in the SPY just 2% to 4% higher.  At that point, we believe the markets will enter another consolidation period and begin to move sideways.  Watch metals and watch for conditions that could present greater risks.  If Gold breaches $2300 or Silver breaches $37.50, then traders should really start to worry that metals are suggesting risk levels are now at critical levels.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is going to be an incredible year for skilled traders.  Don’t miss all the incredible moves and trade setups.

If you found this informative, then sign up now to get a pre-market video every day before the opening bell that walks you through the charts and my proprietary technical analysis of all of the major assets classes. You will also receive my easy-to-follow ETF swing trades that always include an entry price, a stop, two exit targets, as well as a recommended position sizing. Visit my Active ETF Trading Newsletter to learn more.

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

 

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Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

 

Asia-Pacific Shares – Worries Over Flaring Tensions Between US-China Capping Gains

The major Asia-Pacific stock indexes are trading mixed early Monday as investors remained cautious over heightened U.S.-China tensions in recent weeks. Worries over flaring tensions between the two economic powerhouses weighed on risk sentiment although a recovery in industrial activity in the world’s second-largest economy capped losses. Nonetheless, ranges remained tight on Monday.

At 03:30 GMT, Japan’s Nikkei 225 Index is trading 22329.94, down 88.21 or -0.39%. Hong Kong’s Hang Seng Index is at 24429.96, down 102.66 or -0.42% and South Korea’s KOSPI Index is at 2373.37, up 21.70 or -0.92%.

In China, the Shanghai Index is trading 3367.01, up 12.97 or +0.39% and Australia’s S&P/ASX 200 Index is at 6085.50, up 80.70 or 1.34%.

Trading is expected to be on the light side with Japanese markets closed for public holidays.

US-China Relations Remain at Forefront

The latest round of concerns was fueled late last week when U.S. President Donald Trump signed two executive orders banning WeChat, owned by Chinese tech giant Tencent, and TikTok in 45 days’ time while announcing sanctions on 11 Chinese and Hong Kong officials.

Additionally, U.S. regulators recommended that overseas firms listed on American exchanges be subject to U.S. public audit reviews from 2022.

In less than a week, traders could feel more grief if the latest moves by the Trump administration jeopardize the U.S.-China trade talks scheduled for August 15. Finally, there is always the possibility of Chinese retaliation to these moves.

“The running assumption in markets has been President Trump needed the phase one deal to succeed, as much as China, this side of the November elections… At the same time President Trump is running a hard China line into the elections,” Tapas Strickland, director of markets & economics at National Australia Bank said.

TikTok suing Trump Administration Over Ban as Soon as Tuesday:  Report

Social media giant TikTok is planning to sue the Trump administration as soon as Tuesday over its planned ban of the app in the United States, according to an NPR report.

TikTok declined to comment on a potential lawsuit, but the company has said that it will do whatever is possible to ensure that TikTok is treated fairly.

“We will pursue all remedies available to us in order to ensure that the rule of law is not discarded and that our company and our users are treated fairly – if not by the Administration, then by the U.S. Courts,” TikTok said in a statement.

NPR reports that the lawsuit will argue the ban is unconstitutional and that its national security justification is baseless.

“TikTok automatically captures vast swaths of information from its users, including Internet and other network activity information such as location data and browsing and search histories, the executive order reads. “This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information.”

TikTok disputes this, and said Friday that it “has never shared user data with the Chinese government, nor censored content at its request.”

Why is this important to investors? According to Fox Business News, “Multiple American companies, including Microsoft, Google, and Facebook, have expressed interest in buying TikTok. President Trump has insisted that the U.S. Treasury get a cut of whatever deal is made, which could complicate the negotiations.”

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

European Equities: A Light Economic Calendar Leaves Geopolitics in Focus

Economic Calendar:

Tuesday, 11th August

German ZEW Current Conditions (Aug)

German ZEW Economic Sentiment (Aug)

Eurozone ZEW Economic Sentiment (Aug)

Wednesday, 12th August

Italian CPI (MoM) (Jul) Final

Eurozone Industrial Production (MoM) (Jun)

Thursday, 13th August

German CPI (MoM) (Jul) Final

Spanish CPI (YoY) (Jul) Final

Spanish HICP (YoY) (Jul) Final

Friday, 14th August

French CPI (MoM) (Jul) Final

French HICP (MoM) (Jul) Final

Eurozone GDP (YoY) (Q2) 2nd Estimate

Eurozone GDP (QoQ) (Q2) 2nd Estimate

Eurozone Trade Balance (Jun)

The Majors

It was a bullish end to the week for the European majors on Friday. The DAX30 rose by 0.66% to lead the way, with the CAC40 and EuroStoxx600 gaining 0.09% and 0.29% respectively.

Economic data delivered much-needed support on the day, with the European majors recovering from early losses.

Trump’s latest anti-China move had weighed on risk appetite in the early part of the European session. On Thursday night, Trump had announced a ban on transactions with the Chinese owners of TikTok and WeChat apps from late September.

The Stats

It was a quieter day on the Eurozone economic calendar. Key stats included June industrial production and trade data from Germany.

The stats were skewed to the positive, with industrial production jumping by 8.9%, following a 7.4% rise in May.

Trade data also impressed, with Germany’s trade surplus widening from €7.5bn to €14.5bn at the end of the 2nd quarter.

From the U.S

Economic data included July’s labor market figures. Following better than expected jobless claims figures, July’s labor market numbers delivered riskier assets with further support.

Nonfarm payrolls increased by 1,763k in July, which led to a fall in the unemployment rate from 11.1% to 10.2%.

The Market Movers

For the DAX: It was a bearish day for the auto sector on Friday. Continental and Volkswagen slid by 3.28% and by 1.27% respectively. BMW and Daimler saw more modest losses of 0.38% and 0.58% respectively.

It was a mixed day for the banks, however. Deutsche Bank rose by 0.63%, while Commerzbank fell by 0.58%.

From the CAC, it was also a mixed day for the banks. Credit Agricole rose by 0.14%, while BNP Paribas and Soc Gen declined by 0.99% and by 0.03% respectively.

It was a mixed day for the French auto sector. While Peugeot slipped by 0.14%, Renault ended the day with a 1.29% gain.

Air France-KLM fell by 0.34%, while Airbus SE rose by 1.42% on the day.

On the VIX Index

It was a 6th consecutive day in the red for the VIX on Friday. Following on from a 1.48% loss on Thursday, the VIX fell by 1.94% to end the day at 22.21.

While lawmakers failed to find an agreement, the better than expected labor market figures delivered support to the U.S equity markets.

Tech stocks struggled, however, as the markets responded to Trump’s latest move against China.

The S&P500 and Dow rose by 0.06% and by 0.17% respectively, while the NASDAQ fell by 0.87%.

VIX 10/08/20 Daily Chart

The Day Ahead

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

A lack of stats will leave the majors in the hands of geopolitics and U.S JOLT’s job openings due out late in the European session.

Tensions between the U.S and China and the U.S COVID-19 stimulus package will need monitoring.

The Futures

In the futures markets, at the time of writing, the DAX was up by 43 points, with the Dow up by 7 points.

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

Alphabet Losing Ground After Weak Quarter

Alphabet Inc. (GOOGL) sold off after reporting the first year-over-year revenue decline in company history on July 31st, settling into support at the 50-day moving average. The tech behemoth beat Q2 2020 top and bottom line estimates, posting a 29% drop in earnings to $10.13 per-share and a 1.7% revenue decline to a $38.2 billion. Quarterly performance suffered from weak advertising income and search activity, slowing 9.8% year-over-year, with small businesses forced to slash ad budgets in reaction to the COVID-19 pandemic.

Alphabet Notes Gradual Improvement

A company spokesman disclosed that ad revenue ‘gradually improved’ during the quarter but cautioned that it was too early to gauge the uptick’s resilience. Google Cloud revenue lifted an impressive 43% year-over-year, partially offsetting the impact of advertising losses, while monthly-based subscription services booked strong growth in user interaction. Alphabet also authorized an additional $28 billion in Class C stock buybacks.

CEO Sundar Pichai expressed caution about the 2021 outlook but noted “we saw the early signs of stabilization as users returned to commercial activity online.” He pointed to “good traction” in YouTube and Google Play subscriptions, with app and game downloads rising 35%, while the Cloud segment added an impressive list of new clients that include Deutsche Bank. Pichai also added that “customers are choosing Google Cloud to either lower their costs by improving operating efficiency, or to drive innovation.”

Wall Street And Technical Outlook

Wall Street consensus remains highly bullish despite the mediocre quarter, with a ‘Strong Buy’ rating based upon 30 ‘Buy’ and just 2 ‘Hold’ recommendations. No analysts are telling shareholders to take profits and move to the sidelines at this time. Current price targets range from a low of $1,500 to a street-high $1,990 while the stock closed Friday’s session $2 below the low target. This depressed placement suggests that Alphabet is over-valued at this time.

Alphabet failed a breakout above the February high on nearly three-times average daily volume after the release and is now wedged between resistance at 1,530 and moving average support at 1,460. A breakout through either end of this narrow trading range could gather steam, lifting the stock to an all-time high or starting the next leg of an intermediate correction that could reach 1,350 before attracting committed buying interest.

 

 

Potential Deal for TikTok’s US Operations Could be Compelling Strategic Fit for Microsoft, Target Price $230: Morgan Stanley

Given the strength of the asset, solid recent execution and multiple areas of synergies, a potential deal for TikTok’s U.S. operations could be a compelling strategic fit for Microsoft, said Morgan Stanley’s equity analyst, Keith Weiss, who gave a price target of $230 for the software giant’s stock.

Microsoft Corporation said on August 2 that it would quickly pursue discussions to acquire popular short-video app TikTok from Chinese internet giant ByteDance, and that it was aiming to complete the discussions no later than September 15, 2020.

“With both rapid growth to >100 million users and a demographic rapidly expanding from teenagers into older users, TikTok could immediately make Microsoft a viable player in the consumer-oriented social media space (core Facebook has 247 million U.S. users), beyond the LinkedIn professional network, Morgan Stanley’s Weiss said.

While there are no reported financial details, Morgan Stanley said they looked at the range of potential financial impacts based upon figures cited in Reuters and The Information. According to a Reuters’ source-based story, the popular short-video app could do $1 billion in revenue in 2020 and $6 billion next year. The Information reported that the U.S. revenue could be $500 million this year.

“For simplicity, assuming a deal was announced before the September 15th deadline that closed on December 31st, and Microsoft acquired the US business only, which illustratively could grow from $500 million in 2020 to $3 billion in 2021 (500%), TikTok could add 2% inorganic growth to Microsoft’s model in CY21e,” the analyst said.

With a base-case forecast of $230, over 8% increase from Friday’s close of $212.48, Morgan Stanley target price under a bull-case scenario is $290 and $150 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. Microsoft had its price target increased by JPMorgan Chase & Co. to $220 from $190. The firm currently has an overweight rating on the software giant’s stock.

Royal Bank of Canada restated a buy rating and set a $240 target price, up from $200. Barclays increased their price target on shares of Microsoft to $234 from $204 and gave the company an overweight rating. At last, Wells Fargo & Co upped their target price on shares of Microsoft to $250 from $205 and gave the company an overweight rating.

Thirty analysts forecast the average price in 12 months at $228.22 with a high forecast of $260.00 and a low forecast of $195.00. The average price target represents a 7.41% increase from the last price of $212.48. From those 30, 27 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none said ‘Sell’, according to Tipranks.

“Strong positioning for public cloud adoption, large distribution channels and installed customer base, and improving margins support a path well beyond $1 trillion market cap. Durable double-digit NT rev growth is supported by Azure (winning in public cloud), data centre (share gains and positive pricing trends), O365 (base growth and ARPU uplift) and LinkedIn. GM % improvement, continued opex discipline and strong capital return lead to durable teens total return profile,” Weiss added.

“At 30x CY21e GAAP EPS, Microsoft trades at a premium to the S&P, warranted due to MSFT’s premium return profile. Multiple expansion will likely come from gaining comfort in the durability of commercial business gross profit dollars.”

European Equities: A Week in Review – 08/08/20

The Majors

It was a bullish week for the European majors in the week ending 7th August. The DAX30 rose by 2.94%, with the CAC40 and EuroStoxx600 ending the week with gains of 2.21% and 2.03% respectively.

Corporate earnings and economic data provided direction in the week.

While lawmakers had failed to come to an agreement going into Friday, the hope of an agreement prevented a sell-off.

The Stats

It was another busy week on the Eurozone economic calendar.

In the 1st half of the week, July private sector PMIs from Italy and Spain were in focus. Finalized PMIs for France, Germany, and the Eurozone, and June Eurozone retail sales were also in focus.

The stats were mixed. While manufacturing sector activity picked up, service sector activity disappointed at the turn of the quarter, limiting the upside for the majors.

In July, the Eurozone’s finalized composite PMI came in at 54.9. This was up from a prelim 54.8 and June 48.5.

According to the finalized Eurozone Markit survey,

  • It was the 1st time that the index has posted above 50.0 since February and grew at the fastest pace since June 2018.
  • Both the manufacturing and service sectors reported growth in July.
  • An easing in lockdown measures supported a first increase in new business in 5-months. Demand was undermined by continued weakness in international trade, however.
  • New export business declined for a 22nd consecutive month.
  • Firms cut staffing levels for the 5th month in a row

By country,

  • France ranked 1st with a 29-month high composite PMI of 57.3.
  • German (23-month high) and Spain (15-month high) ranked 2nd and 3rd.
  • Italy sat at the bottom of the table in spite of a 24-month high composite.

In the 2nd half of the week, the focus shifted to Germany.

The stats were skewed to the positive. In June, factory orders surged by 27.9%, with industrial production rising by 8.9%.

In spite of the weakness in international trade, Germany’s trade surplus widened from €7.5bn to 14.5bn in June.

From the U.S

It was also a mixed bag on the economic data front.

Key stats were positive, however. July’s ISM manufacturing and Non-Manufacturing PMIs saw increases in July. The all-important ISM Non-Manufacturing PMI rose from 57.1 to 58.1. Factory orders and initial jobless claims figures were also positive.

With plenty of market sensitivity to labor market numbers, initial jobless claims eased back to 1,186k in the week ending 31st July. In the week prior, claims had stood at 1,435k.

At the end of the week, the focus then shifted to July’s nonfarm payrolls and the unemployment rate. A better than expected rise in nonfarm payrolls and a fall in the U.S unemployment rate to 10.2% delivered support on Friday.

The Market Movers

From the DAX, it was a mixed week for the auto sector. Daimler rallied by 8.61% to lead the way. BMW and Volkswagen ended the week up by 1.19% and by 6.58% respectively. Continental bucked the trend, however, falling by 1.30%. A 3.28% slide on Friday delivered the loss for the week.

It was a bullish week for the banking sector, however. Commerzbank rallied by 9.68%, with Deutsche Bank rising by 3.03%.

From the CAC, it was also a bullish week for the banks. BNP Paribas and Credit Agricole rallied by 3.99% and by 3.94% respectively. Soc Gen saw a more modest 2.47% gain on the week.

It was a particularly bullish week for the French auto sector. Peugeot rallied by 5.50%, with Renault surging by 13.46%.

Air France-KLM jumped by 10.20%, with Airbus up by 11.76%.

Travel stocks were on the move as the U.S announced an end to its blanket travel ban.

On the VIX Index

It was a 2nd consecutive week in the red for the VIX, which saw its 7th week in the red out of 8. Following on from a 5.34% loss from the previous week, the VIX fell by 9.20% to 22.21 in the week ending 7th August.

The S&P500 and the NASDAQ ended the week up by 2.45% and by 2.47% respectively, with the Dow rallying by 3.80%.

Economic data and corporate earnings delivered the upside in the week.

Geopolitics was negative for the majors, however, limiting the upside in the week. The tension between the U.S and China and fresh tariffs on certain Canadian aluminum goods tested support. There was also a lack of progress towards the U.S stimulus package.

The Week Ahead

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

In the 1st half of the week, ZEW’s August economic sentiment figures for Germany and the Eurozone will be in focus.

The markets will then need to wait for 2nd estimate GDP numbers for the Eurozone on Friday.

Other stats in the week include Eurozone industrial production and trade data and member state inflation figures.

We would expect these to have a relatively muted impact on the majors.

From the U.S

It is another busy week ahead.

June’s JOLTs job openings on Monday and inflation figures on Tuesday and Wednesday will garner some interest.

In the 2nd half of the week, the focus will shift to the weekly jobless claims on Thursday.

July retail sales, industrial production, and August consumer sentiment figures on Friday wrap things up.

From Elsewhere

Industrial production and fixed asset investment figures from China will also influence on Friday.

Away from the economic calendar, geopolitics, COVID-19, and Brexit will need monitoring throughout the week.

U.S. Stocks Mixed As Unemployment Rate Drops To 10.2%

U.S. President Donald Trump Bans U.S. Transactions With China’s ByteDance and Tencent

U.S. – China relations reached a new low when U.S. President Donald Trump signed executive orders which ban U.S. transactions with operators of TikTok and WeChat.

These executive orders will be effective in 45 days, providing Microsoft with time to conclude its negotiations regarding the purchase of TikTok’s U.S. operations.

China has already announced that it was opposed to the move and promised to defend its interests. However, it is not clear whether China will be able to retaliate given Washington’s dominance in the world financial system.

Another increase in U.S. – China tensions has put pressure on the world markets but the new portion of U.S. employment reports has managed to provide some support to U.S. stocks.

Unemployment Rate Declines To 10.2%

The U.S. has just provided Non Farm Payrolls and Unemployment Rate reports for July.

Non Farm Payrolls report showed that 1.76 million jobs were added in July while analyst consensus called for Non Farm Payrolls of 1.6 million.

Meanwhile, Unemployment Rate declined from 11.1% in June to 10.2% in July compared to analyst consensus of 10.5%.

Both reports were better than expected and provided immediate support to S&P 500 futures which managed to gain some ground after spending most of the morning in negative territory due to the increase of U.S. – China tensions.

It remains to be seen whether the reports will be able to provide enough support to stocks during the current trading session since the negative impact from the increase of U.S. – China tensions may prove to be very significant.

No Progress In Coronavirus Aid Package Negotiations

Republicans and Democrats continue to negotiate the terms of the new coronavirus aid package but it looks like the talks have stalled.

In case no deal is reached by the end of this week, Donald Trump will likely rely on executive orders to provide some support to workers until the consensus on the new stimulus package is reached.

However, the President’s powers are limited so the economy will still need a real deal between Democrats and Republicans to get the required support.

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

Daily Gold News: Thursday, August 7 – Precious Metals Backing Off From Highs, U.S. Jobs Data in Focus

The gold futures contract has further extended its long-term uptrend on Thursday after breaking above the short-term consolidation along $2,000 mark earlier in the week. The market reached new record high at the level of $2,081.80 yesterday and it closed 0.98% above Wednesday’s closing price. Gold price remains the highest in history following U.S. dollar sell-off, among other factors.

Gold is 0.3% lower this morning, as the market is retracing some of yesterday’s advance. What about the other precious metals? Silver rallied 5.62% on Wednesday and today it is 2.1% lower. Platinum gained 2.51% and today it is 2.5% lower. Palladium gained 1.98% yesterday and today it’s 3.3% lower. So precious metals are trading within a short-term downward correction this morning.

Yesterday’s Unemployment Claims release has been better than expected at 1,186 million. And China’s Trade Balance release at 11:00 p.m. has been much higher than expected.

Today we will get the important U.S. monthly jobs data release. Nonfarm Payrolls number is expected to decline to +1,530 million from 4,800 million a month ago. However, Wednesday’s ADP Non-Farm Employment Change has been much worse than expected at only 167,000.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for today:

Friday, August 7

  • 8:30 a.m. U.S. – Non-Farm Employment Change, Unemployment Rate, Average Hourly Earnings m/m
  • 8:30 a.m. Canada – Employment Change, Unemployment Rate
  • 10:00 a.m. U.S. – Final Wholesale Inventories m/m
  • 3:00 p.m. U.S. – Consumer Credit m/m

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

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

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

T-Mobile US Q2 Revenue Jumps 61%, Overtakes AT&T as Second-Largest Carrier; Target Price $115

T-Mobile US Inc, an American wireless network operator, said its revenue jumped 61% to $17.67 billion in the second quarter, beating Wall Street estimates and added it has overtaken rival AT&T Inc as the second-largest wireless provider in the world’s biggest economy, sending its shares over 5% pre-market trading on Friday.

The telecommunications company headquartered in Washington said it add 1,245,000 new customers in the second quarter of this year, pushing its total customer count to 98.3 million, overtaking AT&T in total branded customers across both postpaid and prepaid.

T-Mobile’s Total revenues increased 61% to $17.7 billion in Q2 2020, driven by the Sprint merger and continued customer growth at T-Mobile. That was higher than strategists’ estimates of $17.61 billion, according to IBES data. The company said its net income declined to $110 million, or 9 cents per share, from $939 million, or $1.09 per share, a year earlier.

“We don’t expect to materially change our $89 fair value estimate and we view the shares as modestly overvalued,” said Michael Hodel, director at Morningstar.

On Thursday, T-Mobile US’ shares closed 0.19% higher at $108.10 but gained over 5% in pre-hours trading on the last trading day of the week.

Executive comment

“Surpassing AT&T to become #2 was a huge milestone to kick off Q2, but that was only the beginning! In our first quarter as a combined company, T-Mobile led the industry in total branded customer adds – even in a challenging environment – and there is no doubt that we are THE leading growth company in wireless,” Mike Sievert, T-Mobile CEO said in a press release.

“Now we’re setting our sights on #1 – in customer choice and customers’ hearts – and we’ll get there by doing ONLY what the Un-carrier can do: offering customers the most advanced 5G network AND the best value while continuing to make big moves that fix customer pain points and disrupt this industry. I’m excited about what’s to come in this new T-Mobile era – we’re just getting started!”

T-Mobile US stock forecast

Sixteen analysts forecast the average price in 12 months at $119.50 with a high forecast of $140.00 and a low forecast of $94.82. The average price target represents a 10.55% increase from the last price of $108.10. From those 16, 13 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $115 with a high of $146 under a bull scenario and $62 under the worst-case scenario. JPMorgan raised the target price to $140 from $110 and Deutsche bank kept target price unchanged at $140 target price, upped the rating to buy from hold.

Several other equity analysts have also updated their stock outlook. T-Mobile U.S. received a $110 price target from analysts at Royal Bank of Canada. The firm presently has a “neutral” rating. KeyCorp boosted their target price to $126 from $104 and gave the company an “overweight” rating. Nomura Instinet boosted their target price on T-Mobile U.S. to $110 from $102 and gave the company a “buy” rating.

We think it is good to buy at the current level and target at least $115 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“With the closing of the Sprint merger on April 1, T-Mobile has established itself on relatively equal footing with AT&T and Verizon. Postpaid market share now stands at nearly 30% with the company targeting 2-4% service revenue growth,” Morgan Stanley’s McLeod added.

“The company will be focused on the large integration ahead as it targets $6bn+ in run-rate synergies with the majority coming from decommissioning the legacy Sprint network and moving those subscribers over to a new 5G network. Fixed wireless broadband-enabled by the company’s enhanced mid-band spectrum portfolio could open up an $80 billion + adjacent TAM,” the analyst added.

Upside and Downside risks

1) Better net add and ARPU growth driven by new 5G network 2) Quicker synergy realization 3) Significant growth in fixed wireless broadband, Morgan Stanley highlighted as upside risks to T-Mobile.

1) High churn of Sprint subscriber base. 2) Difficulty in achieving synergy targets and integrating Sprint subscribers. 3) Wireless competition intensifies pressuring ARPUs, were major downside risks.

Asia-Pacific Stocks: Weighed-Down by Rising US-China Tensions

The major Asia-Pacific stock indexes finished mixed but mostly lower on Friday after U.S. President Donald Trump ratcheted up already-heightened tensions with Beijing by banning U.S. transactions with two popular Chinese apps, Tencent’s We Chat and ByteDance’s Tiktok. Meanwhile, China’s trade data showed an export surge.

In the cash market on Friday, Japan’s Nikkei 225 Index settled at 22329.94, down 88.21 or -0.39%. South Korea’s KOSPI Index finished at 2351.67, up 9.06 or +0.39% and Hong Kong Hang Seng Index closed at 24504.48, down 426.10 or -1.71%.

In China, the Shanghai Composite settled at 3354.04, down 32.43 or -0.96% and Australia’s S&P/ASX 200 index finished at 6004.80, down 37.40 or -0.62%.

Trump Takes Aim at China Tech Firms

Trump issued the executive orders to ban U.S. transactions with two popular Chinese apps after his administration said this week it was stepping up efforts to purge “untrusted” Chinese apps from U.S. digital networks and called TikTok and WeChat “significant threats.”

Some analysts looked at the move as the start of an information technology war.

“Perhaps China could block Apple or Microsoft from China. The information sector growingly looks divided into two camps. We could be seeing just the beginning of an information technology war,” said Nana Otsuki, chief analyst at Monex Securities.

“Investors in the West would have to hesitate to invest in China, missing growth opportunities there when there are not many investment opportunities except perhaps for Nasdaq.”

China July Exports Rise at Fastest Pace in Seven Months, but Imports Fall

China’s exports rose at the fastest pace in seven months in July, while imports declined, painting a mixed picture for the economy as it recovers from its pandemic-induced slump.

Exports in July increased 7.2% from a year earlier, the fastest pace since December last year, customs data showed on Friday, confounding analysts’ expectations for a 0.2% drop and quickening from a 0.5% increase in June.

Imports, on the other hand, swung back into contraction, missing market expectations for a 1.0% increase. They had bucked the trend in the previous month.

South Korean Shares Rise Ahead of US Jobs Data; US-China Tensions Weigh

South Korean shares ended higher on Friday, ahead of the release of U.S. jobs data, although sentiment was dampened by the Trump administration’s move to ban U.S. transactions with Chinese-owned apps WeChat and TikTok.

Shares of Korean Air Lines Co. Ltd. surged as much as 16% to a two-month high after the company reported better-than-expected quarterly numbers.

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

US Stocks-Wall Street Gains as Investors Remain Optimistic Over COVID-Aid Package; NASDAQ Closes Over 11,000

The major U.S. stock indexes finished higher on Thursday in a lackluster trade as some major players sat on the sidelines ahead of Friday’s U.S. Non-Farm Payrolls report, and as investors awaited a new fiscal aid package to prop up the country’s economy, with weekly initial claims revealing that 31.3 million Americans were receiving unemployment checks in mid-July.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3349.16, up 21.39 or +0.71%. The blue chip Dow Jones Industrial Average finished at 27386.98, up 185.46 or +0.74% and the technology-based NASDAQ Composite closed at 109.67 or +1.16%.

Highlights

The tech-driven NASDAQ reached a new record high in early trading. Meanwhile, the S&P 500 Index and the Dow remained within striking distance of their all-time highs, finishing about 1% and 7% respectively away from their own peaks scaled in February.

Tech and tech-related heavyweight stocks such as Apple and Facebook helped pace gains on the indexes. The tech-heavy NASDAQ closed above the 11,000-mark for the first time after initially climbing above it on Wednesday.

Economic Data

Economic data released on Thursday painted a mixed picture as Labor Department numbers showed the first decline in jobless claims in three weeks, while a separate report showed a 54% surge in job cuts announced by employers in July, Reuters reported.

COVID-19 Update

Top Congressional Democrats and White House officials tried again on Thursday to find a compromise on major issues including the size of a federal benefit for the unemployed as they work toward relief legislation. Senate Majority Leader Mitch McConnell said on Thursday Republicans and Democrats remained far apart over what to include in another wave of relief.

Sectors and Stocks

Communication services led gains among major S&P sectors.

Western Digital sank 16.7% after the hard drive maker reported weaker-than-expected fourth-quarter revenue and forecast a soft current quarter.

Norwegian Cruise Line Holdings Ltd and hotel operator Hilton Worldwide Holdings Inc. reversed course after dropping in early trade. Both companies reported a wider-than-expected quarterly loss as their businesses were ravaged by the pandemic, Reuters reported.

Bristol-Myers Squibb Co. gained 3.2% after the drug maker raised its annual profit forecast on hopes of a recovery in demand for its hospital-administered drugs.

ViacomCBS Inc. jumped 5.1% after beating analysts’ estimates for quarterly revenue due to high demand for streaming, Reuters reported.

The Internals

The S&P Index recorded 14 new 52-week highs and no new low, while the NASDAQ recorded 103 new highs and one new low.

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