Week Ahead: Brexit crunch time, US earnings season kicks off

Forex
Indices
Week Ahead

Welcome to your guide to the week ahead in the markets.

European Council Summit 

It’s make or break time for Brexit. EU heads of state hold their next summit this week, starting on Thursday. The meeting also marks UK Prime Minister Boris Johnson’s last chance to agree a Brexit deal, but the UK’s latest proposals have not met a warm reception. If nothing is forthcoming, the recently passed Benn Act obligates the PM to request an extension by Saturday at the latest. Boris seems to have some plan to circumnavigate the legislation, although Downing Street is unsurprisingly quiet on the details. 

Earnings Season 

The third quarter earnings season on Wall Street gets underway this week, with S&P 500 companies seen posting a year-on-year earnings per share decline for the third straight quarter. 

As usual banks get the season off to a start. Financials posted decent gains in Q3, boosted by a strong +4.5% gain in September.  

JP Morgan (Tuesday) is expected to deliver EPS of $2.45. In Q2 the company reported net income up 16% to $9.65 billion from last year’s $8.32 billion. EPS beat the $2.50 expected at $2.82, rising from $2.29 in the same quarter a year before. Net interest income is the concern in early September at the Barclays conference boss Jamie Dimon said he sees full-year 2019 net interest income down $500M from the last guidance.  

Citigroup (Tuesdayposted good numbers in Q2 as well with EPS of $1.95 topping the $1.80 expected, although trading revenues were down. For Q3 the Street expects EPS growth of c13% at $1.97 a share. Revenues are expected to rise a little less than 1% to $18.54bn. 

Wells Fargo (Tuesday) beat in Q2 but lower net interest income and comments about higher expenses acted as a drag. EPS for Q3 is seen as at $1.20, up 5.3% year-on-year, on revenues seen –5% at $20.85bn. In September the bank’s CFO lowered the net interest income for the third time in five months, with the company now seeing this key profit metric down 6% this year compared with 2018. Bulls will be clinging to anything positive on net interest income. 

Netflix (Wednesday) has had a tough comedown and Wall Street has turned cold on the stock as the risk of a competitive spiral from the rise of rival streaming services threatens to derail the company’s remarkable growth. Investors have shown concern about subscriber growth rates that have started to falter. In Q2 global net adds of 2.7m massively missed expectations for 5m.  

Eco data 

On the high frequency economic data front we are looking at the RBA meeting minutes and Chinese inflation figures early on Tuesday, with the German ZEW economic sentiment survey likely to be key for the European session. 

Wednesday sees the CPI inflation numbers for the UK and Canada, with US retail sales also in focus. 

Thursday, we have the Australian unemployment data, which is a key factor in the RBA’s thinking on monetary policy, before the Phill Fed manufacturing index ahead of the US session. 

On Friday the focus will be the data out of China, with GDP, industrial production and fixed asset investment figures due. 

Tentatively scheduled for Friday is the US Treasury Currency Report, which outlines countries that the US deems currency manipulators.

Corporate Diary

Earnings season is upon us again, here are the notable releases this week.

October 15thJPMorgan Chase & Co
October 15thJohnson & Johnson
October 15thWells Fargo & Co
October 15thCitigroup
October 16thIBM
October 16thNetflix
October 17thMorgan Stanley
October 17thPhilip Morgan
October 18thAmerican Express

 Coming Up in XRay

There are plenty of great sessions coming up on XRay this year. Watch them live on XRay or catch up in a time to suit you.

Don’t forget to ask your questions in advance to xray@markets.com

07.15 GMTOct 14thEuropean Morning Call
10.00 GMTOct 14thLIVE Earnings Season Preview
15.45 GMTOct 15thAsset of the Day: Oil Outlook
19.00 GMTOct 15th LIVE Trader Training
18.00 GMTOct 17thThe Stop Hunter’s Guide to Technical Analysis (Part 7)

Key Economic Events

There are lots of releases this week that are likely to impact the markets. Also remember that trade tensions and Brexit rumble on which make also cause volatility.

09.30 GMTOct 15thRBA Monetary Policy Meeting Minutes
09.00 GMTOct 15thGerman ZEW Economic Sentiment
08.30 GMTOct 16thUK CPI
12.30 GMTOct 16thUS Retail Sales
14.30 GMTOct 16thEIA Crude Oil Inventories
00.30 GMTOct 17thAustralia Employment Change, Unemployment Rate
08.30 GMTOct 17thUK Retail Sales
12.30 GMTOct 17thPhilly Fed Manufacturing
02.00 GMTOct 18thChina GDP, Industrial Production

Week Ahead: Doves to dominate at Jackson Hole

Forex
Week Ahead
XRay

Welcome to your guide to the week ahead in the markets.

Jackson Hole 

As global bond yields fall and investors worry about a recession, all eyes will be on the central banker meeting this week in Jackson Hole. Whilst it’s rare for major policy announcements to emerge from the symposium, markets will be fixated on any signals from the Fed and others about the path of interest rates. 

FOMC minutes 

Minutes from the Fed’s last meeting will be parsed for clues about future rate cuts. With markets pricing in more cuts this year, these minutes will help show exactly where members stand on the issue. 

Earnings 

A few earnings to watch for – Anglo-Australian miner BHP Billiton and some US retail sector stocks including GAP and Target bring up the rear as US second quarter earnings season winds down. 

Corporate Diary

There are still a lot of earnings releases in the current week, including big name brands Target, Salesforce and Gap.

Approx 22.30 GMT19th AugBHP Billiton Ltd – Q4
Pre-Market20th AugHome Depot – Q2 2020
Pre-Market20th AugMedtronic Plc – Q1 2020
Pre-Market21st AugLowe’s Companies Inc – Q2
Pre-Market21st AugTarget – Q2
After-Market22nd AugSalesforce
After-Market22nd AugGap – Q2
XRay

Join our XRay sessions live, or watch them on catch-up at a convenient time. This week, we’ll be covering the following topics in our live video streams.

07.15 GMT19th AugEuropean Morning Call
17.00 GMT19th AugBlonde Markets
15.30 GMT20th AugAsset of the Day: Bullion Billions
15.45 GMT20th AugAsset of the Day: Oil Outlook
13.00 GMT21st AugAsset of the Day: Indices Insights
Key Economic Events

There’s a lot going on this week, with special notice paid to the Red meeting in Jackson Hole.

08.30 GMT21st AugUK Public Sector Net Borrowing
12.30 GMT21st AugCanadian CPI
18.00 GMT21st AugFOMC Meeting Minutes
07.15 – 08.00 GMT22nd AugEurozone Member PMIs (Services, Manufacturing)
11.30 GMT22nd AugECB Monetary Policy Meeting Accounts
Day 122nd AugFederal Reserve Jackson Hole Symposium
22.45 GMT22nd AugNew Zealand Retail Sales
12.30 GMT23rd AugCanada Retail Sales
Day 223rd AugFederal Reserve Jackson Hole Symposium

Apple earnings preview: eyes on services revs, margins and China

XRay

A whopper of a profits warning at the beginning of January has done nothing to dent Apple’s share price performance in 2019, which is +40% higher this year. So what happens now, with expectations reset lower? Here’s our quick take on what to expect as Apple reports its fiscal second quarter numbers after the close on Tuesday.

It’s all about the pivot away from iPhone unit sales to focus investor attention on Services revenues and the wider Apple ecosystem. Of course, iPhone unit sales won’t be reported. 

Q1 marked a 5% decline in revenues company wide as revenues from iPhone sales declined 15%. Total revenues from everything else plus services was up 19%.

Apple’s guidance

In its Q1 earnings update the company provided the following guidance for Q2: 

  • revenue between $55 billion and $59 billion 
  • gross margin between 37 percent and 38 percent 
  • operating expenses between $8.5 billion and $8.6 billion 
  • other income/(expense) of $300 million 
  • tax rate of approximately 17 percent 

Wall Street is anticipating EPS of $2.36 v $2.73 a year ago, whilst revenues are also seen declining from $61.1bn last year to $57.4bn.  

Dial back to the Jan warning from Tim Cook and it was China where the real trouble lay. We would expect some improvement here to be seen in this quarter’s numbers with demand for iPhones picking up again in the wake of price cuts. 

Services in focus

On Services, clearly the marked it eyeing another bumper jump in revenues, which were up 19.1% in the first quarter. But the impact on overall margins will also be important. The higher margins here should deliver ongoing support to group margins. For Q1, it reported Services margins of 62.8% against 58.3% in the year before.  

We’ll also be looking for anything relating to its suite of new products launched in March – credit card, streaming service, News+ and Arcade. Whilst only News+ was available after the launch event, we may get more of a feel of how these services will affect the bottom line – pricing will be of particular importance. Don’t hold out for much detail in the earnings report, although there could be something in the earnings call.  

Markets will also be eyeing capital returns. A year ago the company committed to $100 in buybacks and dividends over a two-year period. We may well Apple outline further capital returns via an increase in the dividend (10% is being talked about, against a 16% rise last year) and more buybacks. Even if the number are a touch soggy the prospect of more capital returns should keep investors on side. 

Average price target from the 36 analysts we track suggests a 3% downside to the current price at a little short of $200. Following a strong showing so far in 2019, Tuesday’s earnings may result in some changes to price targets on the upside. 

Key focus: Are Services revenues really going to continue to accelerate enough to offset the plateau in iPhone sales? Is there evidence of a bounce back in China?

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