- Chinese shares extend drop on crackdown, US stocks near all-time highs
- Tesla earnings after the closing bell
- Apple, Amazon, Microsoft and Facebook among other earnings highlights this week
- FOMC key macro event on Wednesday
- Plenty of economic data including the Fed’s favourite inflation measure on Friday
Global equities have had quite a mixed ahead of what could be huge week given that we have plenty of (US technology) company earnings results and macro data to look forward to, as well as the FOMC meeting in mid-week. Overnight saw Chinese shares drop as the nation’s widening technology crackdown weighed on risk sentiment. This initially hurt sentiment when the European markets opened, but by the middle of Monday’s session (when this report was being written) the markets here had bounced nicely off their lows, along with Wall Street, copper and crude oil prices. In a further sign of rising risk appetite,
Bitcoin was holding on to most of its sharp overnight gains. Investors were looking forward to the publication of Tesla’s quarterly results after the close of markets, plus the latest numbers from Apple, Amazon and Microsoft later on in the week. UK banks Barclays, NatWest and Lloyds were also due to publish their results, while on the macro front, we have the US Federal Reserve meeting in mid-week and the Fed’s favourite inflation gauge on Friday to look forward to.
Last week was a rollercoaster for the stock markets. After initially extending their declines from the week before, stock indices stormed back over the next few days, sending the Nasdaq to a new all-time high by Friday as technology shares surged. Investors were relieved to find out that the ECB was actively making it crystal clear that its emergency stimulus measures were not going to end any time soon, in part because of concern about the spread of coronavirus variants and supply bottlenecks. The German DAX and other European indices also rose sharply as yields dipped. Meanwhile, the start of the technology earnings season also boosted sentiment as companies such as Twitter and Snap beat, following decent numbers from the banking sector the week before.
Looking Ahead
As we start the new week, much of the focus will remain on the US technology sector as the big household names will all be releasing their results, starting with Tesla tonight, followed by Apple, Microsoft, Alphabet and Amazon in the subsequent days. In addition, we will have plenty of important macro events such as the Fed’s policy decision on Wednesday and their favourite measure of inflation on Friday, to look forward to.
FOMC policy meeting
The FOMC meetings are always important for the markets, especially when we are getting closer and closer to the time when there will be a shift in the central bank’s policy stance. On Wednesday, however, don’t expect to see any explicit changes in the Fed’s stimulus programmes. What is important to pay attention to is on the topic of tapering discussions that started in June. The Fed is likely to raise its voice regarding tapering at the August Jackson Hole conference. With inflation running hot and a few doves at the Fed such as James Bullard becoming a little bit more hawkish, the risks are skewed towards earlier policy normalisation than the Fed chair Jerome Powell has signalled to the markets. Powell thinks inflation pressures are largely transitory and with employment remaining lower than the pre-pandemic levels, he doesn’t believe it is the appropriate time to signal an imminent shift in policy. Still, if Powell reveals that tapering talks have become louder and starts laying the groundwork for policy normalization starting in Q3, then we may see the markets turn volatile with stocks likely to pull back and dollar to rise. Otherwise, sentiment towards risk assets could remain positive.
Technology earnings in focus
With the Nasdaq and S&P 500 hitting fresh record highs, expectations are running high as we look forward to a busy week for technology earnings. The tech giants will need to beat expectations and provide favourable forward guidance to keep indices at these levels. If they disappoint, we may very well see another sharp pullback.
Chart to Watch: Tesla
After its meteoric rise,
Tesla will be in focus on Monday after its shares pulled back about 25% from record highs in recent months. Its shares have fallen in part due to valuation concerns with other carmakers such as GM, Ford and Daimler all ramping up their own electric vehicle offerings. Will the company surprise the markets with some forecast-beating figures?
Source: ThinkMarkets and TradingView
TSLA has managed to hold around its rising 200-day moving average ahead of its earnings results. Bullish investors and speculators will want to see a clean break above the triangle pattern, while a breakdown below would be deemed a bearish outcome.
Will there be any more variants of Covid?
Although risk sentiment was overall positive Monday for Western markets, it is work keeping a close eye on the Chinese equity market sell-off as that could trigger a bit of panic on this side of the world. There’s also the potential that the big tech companies may fail to live up to the high expectations.
Other catalysts that could potentially lead to renewed weakness in risk appetite and a pullback in stocks include the potential for new mutations of Covid to emerge while concerns over the delta variant hasn’t gone away even if UK numbers have been falling for the past few days.
If there’s a broader spread of the delta variant which leads to additional economic restrictions across important economic regions of the world, that could scare away the bulls as too will new mutations of the virus that potentially impact fully vaccinated people. Otherwise, investors remain convinced that with the ongoing vaccinations programme, the virus should remain under a bit of control and that central banks will be there to act as backstop for the markets in any event.
Robinhood IPO
Robinhood will be making its stock market debut on Wednesday. The company was set to raise $2 billion by selling up to 55 million shares, in the range between $38 and $42. If successful, it would give Robinhood a valuation of around $40 billion. Anything more would be a bonus. But as Coinbase found out previously, not all IPOs will live up to expectations despite a great deal of early interest.
Corporate results and macro data highlights
Monday
Tuesday
- US Consumer Confidence (CB), Case-Shiller House Price Index and durable goods orders
- Earnings: Apple, AMD, Microsoft, Alphabet, Visa and Starbucks
Wednesday
- CPI estimates from Australia and Canada
- FOMC statement and press conference (no dot plots)
- Earnings: Barclays, Facebook, PayPal, Qualcomm, Pfizer, Boeing, Ford, McDonalds
- Robinhood IPO
Thursday
- German CPI and unemployment; US Advance GDP (second estimate), Unemployment Claims and Pending Home Sales m/m
- Earnings: Lloyds, Amazon, MasterCard
Friday
- Japan industrial production and retail sales
- Eurozone prelim GDP and flash CPI estimates (with French, German and Spanish data released earlier in the day)
- German retail sales
- Canadian GDP
- US Core PCE Price Index among handful of other US macro pointers
- Earnings: NatWest, Exxon and Chevron, Berkshire Hathaway, Caterpillar and P&G
By Kearabilwe Nonyana
The market continues to go higher even though the percentage gain remains closer to being flat on the week for the benchmark Top 40 index. At the beginning of the week, the market started off in a major sell off due to the rise in the delta variant in countries without efficient vaccination programmes. But since then, the market has clawed back all the losses and is looking to finish the week almost 1% higher. Our Monetary Policy Committee decided to keep rates on hold. Inflationary pressures are seen peaking in late 2022 and early 2023, while inflation expectations remain anchored around the mid-point for that timeframe. This means that the counter cyclical policy tightening will be staved off, unless there are price shocks in the medium to long term. With CPI numbers slowing down to 4.9%, we can be comfortable in saying we should not anticipate rate hikes anytime soon.
The week ahead
FOMC Meeting
The FOMC statement due on Wednesday 28 July will probably be the most important macro event for markets. In last month’s meeting, the hawkish tone taken by some members of the FOMC changed the rhetoric that the Fed has had on accommodative monetary policy. The dot plots, which show policymakers’ perception of the rates environment in their projections, pointed to two interest rate hikes in 2023. This was in sharp contrast to the March meeting, where the projections had pointed to no rate increases until that point. But Fed Chairman Jerome Powell has had a successful campaign to quell markets from being reactionary, as he maintained that the Fed will be accommodative for as long as the labour market is weak and are even willing to overlook transitory inflation in the short term if it stays well above the 2% mark. I anticipate the Fed to remain accommodative in their upcoming statement, although it remains to be seen whether the markets will be convinced.
USD/ZAR
The rand’s depreciation last week, due to the unrests and protests, has continued. The local markets calmed down once President Ramaphosa commanded the armed forces to help in the security effort. The rand has reached the top end of the resistance range at 14.80ish. I anticipate that in the early parts of the week, it will trade between 14.68 support and the 14.80 resistance, before taking its cues from the Fed’s policy decision and general risk appetite from the wider markets.
USD/ZAR 1 hour chart
Private Sector Credit (SARB)
On Thursday 29 July, the SARB will release the June private credit numbers. On the recent Q1 GDP numbers, a lot of growth was being seen in private sector credit extensions. I believe credit extensions were helpful in growing first quarter GDP. It will be great to see if our local banks continue to extend credit to consumers and businesses. A good growth number will be advantageous for our banks. In recent weeks, the banks and financial indices have been feeling pressure and seeing some sustained selling.