Monday’s Bullseye: 20 July 2020

It has been quite a volatile week in the markets for stocks, with the major indices slumping on Monday then rebounding sharply by mid-week, before falling again on Thursday. All major European indices were holding in the positive territory for the week at the time of writing on Friday, with the likes of the FTSE and DAX turning positive on day after a weaker open. US indices traded mixed with the S&P 500 positive on the week, while the Nasdaq remained in the negative territory after some US technology stocks such as Netflix and Twitter sold off, and others came under pressure ahead of a big week for tech earnings next week. Bank reports are mostly out of the way now. The numbers have predictably been poor. But perhaps less so than expected, as heightened volatility boosted their trading revenues. Meanwhile, both precious metals were up for the sixth straight week, with gold trying to stablish a base around $1800 and silver $19.00. A weaker dollar, falling real yields and ongoing concerns over coronavirus cases supported precious metals. Crude oil retreated a little but remained near the recent highs as investor concerns over the OPEC+ tapering production cuts were offset by signs of recovering demand. Although the latest macro pointers released this week were mixed, overall, they were somewhat better than expected including US retail sales and Chinese GDP.
 
European Recovery Fund
 
While US investors will be hoping that technology companies live up to the high expectations with their earnings results after the sector’s outstanding performance during lockdown, European investors will be keen to find out whether the EU leaders will approve the pandemic stimulus fund. Although an agreement to seal the $750 billion package looks likely eventually, German Chancellor Angela Merkel has raised doubts it will happen at the G20 summit which started on Friday. She said: “We’re entering these discussions with plenty of vigor, but I have to say that the differences remain very, very great, so I can’t predict whether we’ll reach an agreement here.” Differences remain over the total size of the package and how the funds will be distributed. If an agreement it not reached at this summit, another one could be arranged for later this month to clinch a deal.
 
Technology companies in focus
 
The bulk of the focus in the coming week will likely be on US technology earnings, after banks started the reporting season with predictably poor, but slightly better-than-expected results. Investors have been piling into technology names during lockdown, which drove the tech-heavy Nasdaq to repeated all-time highs despite the coronavirus pandemic causing a deep recession. Starting from the upcoming week, we will find out whether investors’ insatiable appetite for technology was justified. Selected company earnings announcements to watch out for:
 

_{*AMC = After Market Close; BMO = Before Market Open}

Chart to watch: Tesla
 

Source: TradingView.com and ThinkMarkets

Unquestionably, Tesla’s earnings will garner a lot of the attention in the coming week after its shares staged a massive rally in July, making it the second most valuable car company behind Japan’s Toyota. So, the key question is whether its earnings results and guidance will be able to live up to the high expectations, and more importantly what will happen to its stock price.  
 
Light Economic Calendar
 
Economic data is light in the week ahead, until Friday when the latest manufacturing and services PMIs area released from the Eurozone, UK and US. Thankfully, we will have plenty of company announcements to keep us busy (see above)
 
Below are the macroeconomic highlights for the coming week:
 

As mentioned, the week’s macro calendar is light except for those PMIs on Friday. The Eurozone’s PMIs usually garner most of the attention, and this will likely be the case again as investors are keen to find out how economic activity has revolved across European services and manufacturing sectors, given that the lockdown measures were lifted here first which is part of the reason why the euro has been outperforming of late. The PMIs provide leading indication of economic health. It is a known fact that businesses tend to react quickly to changing market conditions. So, it is safe to assume that their purchasing managers will hold possibly the most current or relevant insights of the economy from companies’ point of view.