EU consumer confidence figures (A) in October published yesterday missed expectations at -7.6 the worst reading since December raising the stakes for the consumer narrative to weaken and hit the economy harder than the current soft patch mostly hitting the manufacturing sector. But already this morning the worse than expected consumer confidence numbers will be forgotten as France PMI figures jump to live in October smashing estimates with the composite PMI hitting 52.6 vs est. 51. Less impressive are the October PMI figures from Germany that missed estimates highlighting Germany’s difficulties in a global slowdown. Nevertheless, the market is weighing on all the macro and earnings data saying they are on the margin positive sending European equities 0.5% higher in today’s session.
On another positive
side, if you will, the Fed increased the liquidity injections in the repo
market to $120bn. The bulls will say more stimulus is good for risky assets
because the Fed is on the ball and getting ahead of the curve, and the bears
will say it shows things are rotten deep inside the machine room of money
markets. It’s too early to call which
narrative will win. For now, it seems most investors believe the repo market
stress and Fed’s injections are less important.
Microsoft (MSFT:xnas) delivered FY20 Q1
earnings last night and beat both on the top and bottom line while indicating expectations
of a strong FY20 Q2 result. However, the market was less impressed with the shares unchanged in
extended trading. Tonight, after the US market close Amazon will report
earnings which we have said is important for market sentiment as investors are
worried about a margin squeeze and growth slowdown for the e-commerce giant. But
there were clues in Microsoft’s earnings report that Amazon will beat earnings
estimates as Microsoft said margin improved in its cloud business and expected it
to continue improving. If Amazon has same tailwind this bodes well for tonight’s
earnings release. As we
wrote this Monday, good earnings from Microsoft and Amazon given their
combined 7.2% weight in the S&P 500 Index is all its takes for the S&P
500 to set a new record. Given the positive momentum today, and given we don’t
get any bad macro headlines, and Amazon delivers tonight then it’s not unlikely
that S&P 500 will see a new high today.
Nordea (NDA_FI:xhel) shares were initially down
5% in early trading but has recouped some of the loss as investors listened in
on the conference call but also recognized that not all numbers were bad in the
Q3 result. The
largest bank in the Nordics is slashing the dividend per share to €0.40 in 2020
vs estimates of €0.60 as the bank needs to preserve costs as the bank
undertakes large IT investments. The new CEO is also changing the strategy leaving
room for M&A activity. The CET1 ratio and the top line looked good, but it
was the initial headline of a quarterly loss due to a €1.3bn one-off item that
spooked investors.
Other
stocks on the move in today’s European session are Norwegian (NAS:xosl), AstraZeneca
(AZN:xlon) and Nokia (NOKIA:xhel).
Norwegian delivers a surprisingly strong Q3 result and AstraZeneca is raising
its sales forecast. Nokia on the other hand is cutting its guidance.
Tesla (TSLA:xnas) shares rose 20% in extended trading as the Q3
earnings release surprised everyone and the most optimistic analyst delivering
EPS $1.86 compared to consensus $-0.24. The
solar division delivered its first profit and management announced that car
production has already started in its new Chinese factory and that the new
crossover Model Y will start production two months before scheduled next year. Better
cost discipline drove gross margin to 18.9% up from a dismal 12.5% in Q1, the
low point for Tesla on gross margin, but revenue declined 8% y/y for the first
time since Q3 2012 and analyst expect revenue to continue declining in Q4 but
starting to show growth again in Q1 2020. For
all of Elon Musk’s empty promises and tight deadlines we must give him credit
for a staggering turnaround in the business as Tesla has improved 12-month free
cash flow from $-4.2bn to $975mn in just two years. It seems like Tesla’s
business is finding its feet with sustained profitability at current production
level. The Chinese factory should also help improve margins and drive
growth in the Chinese market unless the US-China trade war turns ugly and Chinese
consumers begin to boycott US consumer goods.
Today’s ECB
meeting and press confidence will have zero policy implication as the market is
expecting nothing from the ECB as the central bank is close to the limit of
what it can do. However, the ECB meeting will mark the end of Mario Draghi’s
reign over European monetary policy and unthinkable experiments on monetary
policy such as negative deposit rates and quantitative easing (asset purchases)
in a German influenced political union. Mario Draghi’s famous improvised words “whatever
it takes” with a Financial Times journalist in July 2012 likely saved the Euro
to some degree and as time passed the ECB grew more divided as Mario Draghi
continued to push ECB into unchartered water. The incoming ECB President Christine
Lagarde takes over a divided ECB and an agitated German political class that don’t
like negative rates on deposits. Our
view is that Lagarde could likely become the person that brokers a deal with EU
leaders to take rates back to zero or slightly positive with fiscal policy
offsetting whatever weakness this action creates. One counter argument is
that Germany has just nominated Isabel Schnabel to the Governing Council and
she is far more pro monetary stimulus in the current form than the outgoing Sabine Lautenschlaeger.
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
– Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
– Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
– Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)
