Earnings releases are published at a racing speed these days and often it’s not easy to gauge which single release gets the market’s attention. Last night’s outlook from Texas Instrument (TXN:xnas) was a massive disappointment for those looking for early signs of a rebound in the semiconductor industry. Texas Instrument guides Q4 revenue in the range $3.07-$3.33bn against analysts estimate of $3.59bn saying economic activity is weakening and trade tensions are holding back investments from customer. The two biggest decliners among their customer segments are carmakers and communication equipment makers. Texas Instrument is saying they will cut production against this weak environment which is a sign that layoffs could also be on the table. European equities are down 0.4% with semiconductors leading the declines down 2%.
macro front French business surveys for
October shows the worst confidence in the manufacturing sector since Q1 2015
after being more stable than many other countries in Europe this year. It shows
that the downside dynamics in the economy are spreading not turning around.
Eurozone consumer confidence numbers (advance) for October are out at 14:00 GMT
and is expected to decline a bit from the September reading. As with the US
consumer, the European consumer is still quite confident given the clear signs
of recession in the manufacturing sector which is most likely due to robust
employment as the economic slowdown has still not started widespread layoffs
frequent reader of our equity updates knows we view the equity market with
skeptical eyes as the levels do not fit the overall picture of US-China trade
war, 20-month straight economic slowdown, recession in Germany and Sweden, and likely
imminent negative profit growth. Wall Street Journal had a great article
yesterday questioning whether global equities could be in a stealth bear market.
Many equity indices have still not
recouped the highs from January 2018 so S&P 500 flirting with all-time highs
gives the indication of a strong market, but weakness is evident everywhere. In
our Market Call podcast this morning we also discussed the fact that US leveraged
loans are not bid indicating risk-off in the far corners of risky assets.
all eyes today are on Caterpillar
(CAT:xnys) reporting Q3 earnings at 10:30 GMT where analysts are expecting
the first negative revenue decline y/y since Q4 2016. Caterpillar is also
always an interesting company to follow as its large exposure to Asia Pacific
in the construction sector makes it a could indicator on economic activity.
Boeing (BA:xnys) is also reporting Q3 earnings before the US
market open, but the time is unspecified, and this is a crucial release for the
aircraft maker still embattled in a scandal around its 737 Max plane which a
ruling in Indonesia overnight saying that it was Boeing’s faulty 737 Max design
that was guilty in the Lion Air Flight 610 crash in October 2018. Any weak guidance will pose a significant
downside risk for investors as valuation multiples are still rich given the
issues around the 737 Max plane and the fact that revenue growth was -35% y/y in
Q2 and expected to be -22% y/y in Q3. Yesterday, European aviation
regulators also said that they will not necessarily follow an approval schedule
from the US aviation regulator FAA which means that a global return to the skies
for the 737 Max could extend well into 2020.
important earnings release today is from Microsoft
(MSFT:xnas) reporting FY20 Q1 earnings tonight after the close with expectations
looking for 11% revenue growth and 9% EPS growth which we believe should be achievable. Microsoft is the biggest component in the
S&P 500 Index with a 4.2% weight. Shares are valued at the highest
valuation multiple since 2004 so any miss against estimates would most likely
be punished by investors and could dent overall sentiment in S&P 500.
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