US markets ended on a much more positive note yesterday on optimism that last night’s fall in tech earnings after the bell would help further stabilize sentiment, after a brutal week for equity markets in general.
This turned out to be a false hope, despite some pretty decent numbers. Amazon for example blew the doors down in terms of profits, making more money in the first nine months of the year than 2019 as a whole, while adding more than 400,000 jobs since the start of 2020.
Investors weren’t impressed, however, as the shares were sold after hours of work due to some disappointment with his estimate of fourth-quarter operating profit.
It seems to be a bit difficult, given that Amazon’s estimates for fourth-quarter sales were even higher than their third-quarter all-time high, but we nonetheless saw tech stocks in Asia also pull back after sales of ‘Apple’s iPhones failed in the fourth quarter.
Again, it shouldn’t be a surprise when everyone knows Apple has a new iPhone model coming out in the next quarter. Who wants to buy a new iPhone that will be quickly replaced by a newer model in a few weeks?
This negative tone in Asia manifested itself in an equally negative opening this morning in Europe, as markets here seem poised to post their worst weekly performance since the March sales, as concerns about lack of demand during the winter months undermine sentiment.
Oil prices were also crushed this week, on demand concerns as new foreclosures take effect and look set for their worst week since April, bad news for oil companies as they saw their margins improve a bit from March lows and the huge losses we’ve seen them post in their Q2 issues.
France’s latest GDP figures for this morning’s third quarter served to reinforce the rhetoric that while the third quarter saw a solid rebound in economic activity as countries in Europe emerged from lockdown, the best of the rebound is now in the rearview mirror, as the country enters a new one-month partial lockdown, starting today, with Germany set to follow 1st November, and the UK government increasing localized restrictions in parts of England in response to the surge in hospitalizations.
The European Central Bank did consider further stimulus measures at its meeting in December, but decided to sit on its hands yesterday, and while some have criticized its inaction, it’s hard to see what they could have done. do more, given that there is no prospect of a short-term fiscal stimulus, and we have a US election next week with a somewhat uncertain outcome.
The newly renamed NatWest Group completes this week’s updates on the UK banking sector, in a week that has generally painted a better-than-expected picture of the health of UK banks in general. Lloyds figures yesterday showed that mortgage demand was particularly helpful in boosting their activity in the third quarter as more people sought to take advantage of next year’s stamp duty deadline.
This morning’s NatWest figures saw the bank posting pre-tax profits of £ 355m for the third quarter, with the bank setting aside an additional £ 254m in outstanding loans, helping to push stocks atop the FTSE100 in early trade. . This provision was lower than expected and comes on top of the £ 2.8 billion set aside in the first half of this year. Like its peers, the bank said it expects write-downs for the full year to be at the low end of expectations, in their case at the low end of the 3.5-4 range. , 5 billion pounds sterling. While today’s quarterly profit is welcome, it still has not been enough to push the bank to make profit for the year to date as the bank is currently at a loss of £ 415million .
As with all other banks, shareholders will hope they are right, but as we head into winter and various parts of the UK start to come under increasingly stringent restrictions, one can’t help but think that the banks could have been better. served on supply just to be on the safe side. The net interest margin remained stable, albeit slightly below 1.65%.
British Airways owner IAG also released its latest issues for Q3 and it’s not a pretty picture. Passenger income for nine months at 30e September was down 71.4% to 4.89 billion euros, from 17.08 billion euros, and total revenue down 66% to 6.5 billion euros. Q3 operating loss amounted to € 1.9 billion with passenger capacity down 78.6% compared to the same quarter last year.
This saw the airline slide to a loss including one-time items of 5.56 billion euros, down from a profit of 1.8 billion euros a year ago.
These are dark times for the airline sector and if IAG has just completed a fundraising of 2.74 billion euros which has improved its capital position, with more than 5 billion euros in liquidity now at its disposal, the next few months are likely to be crucial in terms of management’s projections for breakeven in terms of net cash flow from operating activities. This was originally supposed to happen in Q4, but now it looks increasingly likely that we won’t see it until Q2 at the earliest, if the current lockdown restrictions remain in place through the winter.
Continue with the theme of airlines Air France-KLM has become the last European airline to take a scalpel in its winter program by reducing its capacity to 35% compared to a year ago, for the French activity and to 45% for the KLM side. This still looks pretty high compared to IAG, which cut its schedule to 30% and Lufthansa, to 25%.
This likely means that the airlines’ fourth quarter loss is likely to be significantly worse than the third quarter loss of € 442 million. As such, the prospect that the airline will need to raise new equity has become more urgent, a task CFO Frederic Gagey said he is working on.
Unsurprisingly, given its sensitivity to the ability of airlines to keep planes in the air, Rolls Royce shares are also significantly lower, as fewer flying hours mean lower revenues.
Glencore also released its latest third quarter production report, which saw the company cut its forecast for coal due to strikes in Cerrejon, Colombia. As for his other production targets, these have remained unchanged.
It has been a solid week for the US dollar, which is not entirely surprising given the strong change in sentiment seen this week, with the Japanese yen being the only other currency to perform better. The pound has proven to be surprisingly resilient, with growing optimism that some form of trade deal with the EU may well emerge in the coming weeks, as the UK receives praise from the IMF for coordination. of its fiscal and monetary policy response to the pandemic.
US markets appear poised to collapse upon opening as concerns about the outlook appear to have outstripped the largely positive figures from Facebook, Amazon and Apple last night.
On the earnings front, the latest figures from American oil giant ExxonMobil will be the main objective, the day after the company announces the elimination of 14,000 jobs from its global workforce, including 1,900 in the United States. The US oil majors seem to deny the transition to renewables, with very little investment in this growing area.
If Biden wins next week, they may well find themselves even more in the crosshairs, especially if Democrats seek to accelerate the transition away from fossil fuels. Expectations are for a loss of C $ 0.21 per share.
On the data front, we have the latest personal spending figures for September, which should reflect the strong rebound in retail sales since the United States emerged from the lockout. We saw a V-shaped recovery in retail spending, while consumer confidence also rebounded strongly in September. This happened despite mounting uncertainty ahead of next week’s presidential election and the expiration of the $ 600-per-week payment to U.S. households through the end of July. Personal spending has also been strong, increasing for four straight months with the prospect that we could see another month in positive territory.
Core PCE is also expected to see a modest increase to 1.7% from 1.6%.
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