Profit-taking has been the main theme during the Asian and the first half of European sessions today.
Gold neared the $2,000 mark overnight before dropping sharply, although it along with silver have since bounced off their lows again. Fundamentally nothing has changed, but prices were getting extremely overbought as they rose sharply in a short space of time. Thus, one can only conclude that it was indeed profit-taking near key levels which sparked a sharp sell-off overnight, as weaker longs were shaken out.
Meanwhile European equities and US index futures also drifted lower. Optimism over a strong economic recovery has faded over the past few weeks as investors realise the fight against coronavirus is proving more challenging than some had anticipated. This week’s upcoming macro data and the meeting of the Federal Reserve will probably echo that sentiment. However, the losses have been contained, as the spread of the virus has slowed in the US somewhat, and scientists get closer to finding a vaccine. The ongoing monetary and fiscal stimulus, and the potential for at least $1 trillion more in government spending by the US, means the selling is likely to be mild, if anything.
Today, the economic calendar is very quiet with only a couple of noteworthy data releases to look forward to in the afternoon – these being the CB Consumer Confidence and the Richmond Manufacturing Index. So, today’s focus will probably be on (1) coronavirus, with fears over a second wave returning to parts of Europe, as well as (2) company earnings.
The latest on Coronavirus is that:
- The UK PM Boris Johnson has defended the government's decision to impose a 14-day quarantine on all arrivals, including retuning holidaymakers, from Spain, and has warned there are "signs of a second wave" of Covid-19 in parts of Europe.
- The Spanish regions of Catalonia, Navarra and Aragon have seen high infection numbers. In Madrid, wearing face masks in public at all times has become compulsory.
- The number of new cases in Germany almost doubled on Tuesday to 633.
- Belgium has decided to tighten its social restrictions in an effort to avert fresh lockdown, as the nation’s largest city, Antwerp, has seen a sharp rise in infections.
Today’s earnings reporters include McDonald’s and Pfizer, which reported their numbers before the bell, while the likes of AMD, Visa, eBay and Starbucks will be posting their results after the close.
- eBay is the big next tech company set to post its results this evening. The company upgraded its Q2 revenue and earnings guidance in June and its shares have more than doubled. During lockdown, businesses such as eBay and Amazon and other delivery services flourished. eBay also sold its Classified Business to Adevinta in a deal valued at US$9.2 billion, which further supported the rally. But the bar is set so high now that a minor disappointment might trigger a sell-off. Earnings are expected at $1.05 per share.
- AMD: Analysts expect EPS of $0.16, double from $0.08 reported in Q2 2019. Revenues are seeing rising 21.5% to $1.86 billion compared to the same period last year. Along with other tech shares, AMD rallied from the March low of around $37, before spending a few months near its previous high of just under $60. However, the stock has soared sharply higher in the last few sessions as Intel, its main rival, announced delays in its next generation 10nm chips. AMD shares on Monday surpassed $70 for the first time ever, before easing back a little ahead of its earnings.
- Visa: Revenues are expected to fall 17.40% from $5.8B in Q2 2019 to $4.8B, and EPS is expected to fall from $1.37 to $1.03. A key metric that the markets will look out for is the change in payment volumes, which are expected to have fallen sharply due to lower consumer spending during lockdown. Visa shares have risen sharply from their March low of just under $134 to climb to around $200 in recent weeks. On the year, the stock is slightly outperforming the S&P 500. “Everywhere you want to be” may be the tagline for Visa, but bullish speculators will certainly be happy so long as its earnings top estimates, and more so if shares surpass the previous all-time high of $214.
Things should pick up as we head into the second half of the week, both from a macro as well as micro points of view. The
FOMC will be making a rate decision on Wednesday, after we have had pending home sales and crude oil inventories earlier in the day. We will have
growth figures from Germany and the US on Thursday, while
Eurozone GDP as well as
Chinese manufacturing PMI will be published on Friday. But it will likely be the
big tech earnings which will garner most of the attention, with
Apple,
Google and
Amazon all reporting on
Thursday.
