News & Analysis

Weekly Summary – An eventful end of the Month

February 1, 2019

By Deepta Bolaky

It was an interesting week on the geopolitical and economic front. Investors were busy with the earnings season, trade talks, Brexit and the Fed.

Earnings Season

We started the week with profit warnings from Caterpillar and Nvidia. Caterpillar missed revenue expectations for the first time in a decade and exacerbated fears of slowing global growth. However, as the week progresses, we saw good corporate reports from some companies while others did better than initially expected. There were some downgrades in revenue forecasts, but overall, the earnings season has brought some surprises to the upside so far:

Apple, Microsoft, Alibaba, McDonalds and Tesla quarterly updates were mixed.

  • Apple: After a rare warning from Tim Cook, the earnings reported showed some concerns but was not as horrible as anticipated. 
  • For Microsoft, while revenue from Windows licenses has reduced, surface and game revenue were strong. 
  • Alibaba delivered solid earnings, but growth is slowing. 
  • Similarly, McDonalds performance in 2018 was strong, but revenue from domestic same-stores came slightly below expectations. 
  • Tesla’s business was less profitable than some had expected. It was a hit on a number of fronts but fell short in the sale of regulatory credits and had to bear extra costs from higher import duties on parts coming from China. 

Boeing, Facebook and Amazon beat estimates. It should be highlighted that two of those belong to the FAANG Group.

  • Boeing: It was the first time that Aerospace giant reported an annual revenue above $100bn. The company has a very close relationship with China, and despite the trade tensions that rattled the financial markets, investors were pleased to see a company like Boeing exceeding expectations. Its CEO who has been involved in discussions with both governments sees progress on the trade front and had raised EPS and revenue forecasts for the next quarter.
  • Facebook: Despite privacy-related scandals, Facebook beat quarterly revenue and profit estimates. The growth was supported by Instagram business and the rise in advertising spending by companies.
  • Amazon: The Company reported robust sales and profit for the fourth quarter which included the crucial Christmas sales figures. However, as of writing, markets appear to be ignoring the reports but concentrating more on the downgrade sales forecasts for the upcoming three months. The stock price is trending in the red in the extended hours.

All in all, the mixed earnings reported this week are not fuelling the existing fears but helping investors to gauge a more realistic picture of the markets and adjust their positions accordingly.

World Equity Indices (% Change)

Source: Bloomberg Terminal

The Federal Reserve

The FOMC Press Conference and the Fed’s Monetary Policy Statement was probably the most important event for the markets this week. Investors liked the “patient” language adopted by the Fed and had set a positive tone for the equity markets. In the FX markets, we saw the US dollar plummeting against a basket of currencies before bulls stepped-in and helped the greenback to pare some of its losses.

US Dollar Index (Hourly Chart)

Source: GO MT4

US-Sino Trade News

There were two days of high-level talks between the US and China’s officials in Washington this week. While both sides still have to overcome significant hurdles, there are some positive comments following the trade talks. Trump’s comments were a big vague whereby it was hard to gauge whether there will be a deal by the March deadline or if the deadline will be postponed. All we know as of writing is that there are progress and President Trump and Xi Jinping will meet in late February for discussions.

Economic Data

The economic calendar was packed this week. We saw a few central bank speeches – ECB, BoE, and the Fed. After a dearth of US economic releases recently, we received data on the housing sector, consumer confidence, and the labour market. ADP Employment and New Home Sales surprised on the upside which helped the US dollar to find some relief, while the Purchasing Managers Index dropped from 65.4 to 56.7.

In Australia, the CPI figures were better than expected which aided the Aussie dollar to trend on the upside. The local currency also got some support from upbeat PMI figures in China. However, the gains were not significant given that the Manufacturing PMI remains under 50 which means it is still in the contraction phase.

As of writing, we are still awating notable data releases such as Caixin PMI figures, EZ Manufacturing PMI figures, EZ CPI preliminary figures and Non-farm payrolls.

Brexit Plan B

The UK Parliament voted in favour of an influential Conservative MP, Graham Brady’s amendment to reopen negotiations with the EU over the Northern Ireland backstop. There was more clarity on a plan that can secure a substantial and sustainable majority for leaving the EU with a deal.

The Pound came under renewed selling pressure this week compared to last week. The Sterling was up against the G10 currencies last week, and traded on the back foot against rival currencies this week.

Source: Bloomberg

Second shutdown Looms

The US government opens temporarily after the most extended shutdown in US history. The three-week pause initially lifted investor sentiment and helped Asian stocks push higher on Monday’s open. It is reported that the shutdown cost the economy $11 billion, which includes approximately $3 billion of permanent loss.

Economists are predicting a drop of 0.2% in GDP for the first quarter of 2019. There are still some negative effects that may not immediately be identified or quantified at this stage. There are also few delays in the economic data releases.

However, Trump is not ready to stop his fight for the Wall and threatened a second shutdown.

Oil Markets

Oil prices rebounded on the back of bullish oil reports and the political upheaval in Venezuela. However, as of writing, the bullish momentum lost its steam and WTI, and Brent Crude dropped due to conflicting geopolitical news.

USOUSD and UKOUSD (Weekly Chart)

Source: GO MT4

Monday, 04 Feb 2019
Indicative Index Dividends
Dividends are in Points
ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50
0 0 0.049 0.115 0 0 0
ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50
0 0 0 0 0 0 0