US June quarter reporting accelerates this week with earnings from four major tech stocks to drive sentiment on Wall Street and possibly set the tone for the rest of the season.
Global markets will be looking for guidance from the more than 70 S&P 500 companies down to release reports this week after they finished a touch better last week.
Commodities weakened again last week, the US dollar again strengthened and bond yields eased a touch as inflation woes continued to dominate attention.
European shares rose 2.1% on Friday and the S&P 500 on Wall Street was up 1.9%. These positive leads saw the ASX 200 futures rise 57 points, or 0.9%, pointing to a positive start to trade for the Australian share market later today.
Friday saw US markets’ fears about a 1% rise at the next Fed meeting next week ease and futures markets are now betting it will be a 0.75% rise.
This week it will be very different and the economic questions will have to share front of stage with some important quarterly results, starting with Netflix, Tesla, Snap and Twitter.
June quarter earnings are forecast to have risen by 5.1% but FactSet though says the actual rise after 7% of S&P 500 companies have reported was 4.2% as of last Friday, down from 4.4% the Friday before.
During the coming week, 73 S&P 500 companies (including seven Dow 30 components) are due to report results for the second quarter.
Netflix, the trigger of the tech sell offs in February and April with weak subscriber numbers and forecasts, reports Tuesday (Wednesday morning, Sydney time) and analysts are wondering whether it will be third time unlucky.
Netflix has forecast a fall of 2 million global subscribers – to 219.64 million – for the June quarter.
Investors and analysts will be looking to see if that figure holds or whether the loss is larger. Also on the agenda, cost cuts (over 400 staff have gone in the past couple of months) and progress on a new streaming structure with a low-cost basic stream including advertising.
Netflix said last week Microsoft is going to be its global advertising partner – rejecting the likes of Alphabet (Google), Meta (Facebook), Amazon and Apple.
Tesla, Elon Musk’s electric vehicle (EV) maker reports Wednesday and is expected to report a loss or small profit after Covid restrictions in Shanghai during the quarter cut production and sales of its EVs.
Snap, which added to the tech sector’s woes in May with a warning it will miss revenue and earnings forecasts for the June quarter and saw its shares fall 30% in a day is due to report Thursday.
Friday completes the circle for Elon Musk with Twitter due to release its quarterly figures on Friday. Seeing its suing to force Musk to complete his $US44 million takeover offer, Twitter will not say very much.
Besides the performance in the quarter, analysts and investors will be looking very closely at forecasts and guidance for the current quarter and rest of the year. Twitter again won’t be saying much but Netflix’s subscriber estimates will be top of the list for examination.
Along with this quartet, tech/media groups also reporting include AT&T (its shareholders control Discovery, HBO and Verizon.
Oil and gas services giants, Halliburton, Schlumberger and Baker Hughes also report this week and should have some big numbers to talk about. Airlines also report – United, Alaska Air and American Airlines are down to report.
Abbott Labs and Johnson and Johnson are two big drug groups due to report – Abbott is also responsible for the great American baby formula shortage that has boosted Bubs Australia. Abbott could have some red ink to reveal in this business.
Bank of America and Goldman Sachs report tonight, our time and will follow the lead of rivals like JPMorgan, Citi and Morgan Stanley in revealing weak results.
Transport giants CSX (rail) and JB Hunt (trucking) are also due to report, along with home builder, Dr Horton, car dealer, AutoNation, Amex, Domino’s Pizza, Nucor (a big steelmaker), Las Vegas Sands, Nasdaq, Lockheed Martin, Mattel, Hasbro, Dow and Volvo.
Wall Street rallied on Friday in response to a new round of bank earnings and promising economic data as fears subsided of a 100 basis point rate hike from the Federal Reserve to subdue rising inflation.
The Dow surged 658.09 points, or 2.15%, to settle at 31,288.26. The S&P 500 jumped 1.92% to 3,863.16, and the Nasdaq bounced 1.79% to 11,452.42.
Despite Friday’s gains, all the major averages closed out the week with losses. The Dow slipped close to 0.2% while the S&P and Nasdaq fell 0.9% and nearly 1.6%, respectively. That left the S&P 500 nearly 19% off its highs for the year.
But while US and European shares both bounced on Friday as US rate hike fears eased a little, for the week they were down 0.9% and 1.1% respectively.
The fall in Eurozone shares was magnified by the risk of a permanent shutdown of Russian gas flowing through the Nordstream 1 pipeline to Germany following a maintenance shutdown and another political crisis in Italy with the Five Star Movement withdrawing support for the Draghi Government.
On top of that the European Central Bank will join the interest rate increase game with a 0.25% lift on Thursday.
Chinese shares fell 4.1% for the week with weak trade data midweek and then news that growth contracted in the three months to June by 2.6% but Japanese shares managed a 1% gain.
Australian shares fell 1.1% led by sharp falls in miners on weak commodity prices (especially iron ore and copper), with utility, financial and property shares also down sharply.
“The market is getting a little bit more convinced that the Fed is probably not going to be delivering a full point rate increase at the end of the month and that we’re getting close to seeing peak Fed tightening get priced into the market,” said Edward Moya, a senior analyst at OANDA.
That’s “giving some relief for investors to scale back into equities.”
US bond yields ended around 2.92% for the 10-year note, the Aussie dollar was back within sight of 68 US cents at 67.93 US cents and the dollar index ended near a 20 year highs at 107.98.
The euro ended at 1.0088 after dipping to and under parity during the week and the yen was still around two-decade lows at 138.53.
And China got another reminder of the problems with Covid in the gambling hotspot of Macau last week as the city and its 31 casinos were locked down.
On Saturday that week long closure was extended till next Friday, July 22 because testing and infections are still happening.
The lockdown had been due to end on today (Monday).
Macau imposed the shutdown last Monday, closing its casinos and stopping residents from leaving their apartments, except for essential activities such as grocery shopping.
Macau has recorded around 1,700 coronavirus infections since mid-June.
Reuters says more than 20,000 people are in mandatory quarantine as the Macau government adheres to China’s zero-COVID policy, which aims to stamp out all outbreaks, running counter to a global trend of trying to coexist with the virus.
“More than 90% of Macau’s 600,000 residents are fully vaccinated against COVID but this is the first time the city has had to grapple with the fast-spreading Omicron variant.
“The former Portuguese colony has only one public hospital for its more than 600,000 residents, and its medical system was already stretched before the coronavirus outbreak.”
The lockdowns are hurting some casinos.
Last week Las Vegas Sands lent $US1 billion to Sands China following the Macau lockdown. Las Vegas Sands is due to report its June quarter figures this week and will be quizzed about its finances in the wake of the drop in gaming revenues and the current lockdown and big loan.
This loan followed a $US500 million loan by Wynn Resorts its Macau arm. Wynn is providing its Macau arm with the credit facility to support “potential future working capital and other funding needs, if necessary.” Wynn Resorts owns approximately 72% of the issued share capital of Wynn Macau.