Wednesday, July 29, 2020

Asia Times: AMD’s shares spike more than 10% after beating expectations; S&P500 falls with a shift to risk aversion

Tags
  • Dollar
  • Gold
  • Yen
  • Euro
  • Stocks
  • Oil
  • US earnings' season

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Market Recap: AMD’s shares spike more than 10% after beating expectations; S&P500 falls with a shift to risk aversion

Stocks in the US fell on Tuesday as investor sentiment grew increasingly mixed on corporate earnings reports and growing Covid-19 infections in the country. Dow heavy weights, 3M and McDonald's, both missed forecasts, as the two companies were the latest in a string of worse-than-expected corporate earnings reports to confirm the slowdown in the global economy. Worse-than-expected consumer confidence also impacted investor sentiment, highlighting the severity that the resurgence of Covid-19 infections had on consumer sentiment. The expectations sub index of the US Conference Board's consumer confidence index was the highlight of the dataset, as it showed that consumers' expectations of the US economy dipped from 106.0 to 91.5, its first decline since March. On the virus front, Florida reported a record one-day rise in deaths from Covid-19, while the total count of cases in Texas exceeded 400,000. While cases in those states appear to be slowing down, other states including Kansas, Mississippi and Missouri, are showing signals of a possible spike in infections.

In sector news, the materials, energy and consumer discretionary sectors were the worst performing, highlighting that profit taking may have likely continued to put downward pressure on certain sectors on Tuesday. Tech stocks fell as well, pushing the Nasdaq to lose some of its gains from Monday. The movements in stock prices suggests that investors may be shifting towards more risk adverse assets ahead of the Fed's monetary policy meeting and fiscal stimulus measures from the US government. Increasingly weak corporate earnings reports may also have played a factor in the pullback that was seen on Tuesday.

3M's stock closed the day 4.85% lower after disappointing revenues and profit margins amid the Covid-19 pandemic dented demand for the company's stock as a defensive play in the current environment. The company's diverse portfolio of products proved to be only effective to a certain extent, as while its N95 respirators saw a spike in demand, it was unable to cover for all the declines from its other segments. As a result, 3M's revenue fell 13% in the second quarter for the year, putting its overall revenue and subsequently earnings below expectations (Revenue: US$7.176 billion (A), US$7.297 billion (E); EPS (Adj): US$1.776/share (A), US$1.794/share (E)). CEO Mike Roman did comment that sales trends were improving for July despite not providing a 2020 forecast, a common theme among companies affected by the pandemic.

AMD managed to blow past all expectations in its latest earnings report, a stark contrast to Intel's earnings call last week as both its server and desktop computing chips drove both its current earnings and forward guidance for the rest of the year. The chipmaker reported a 26% jump in revenue to US$1.93 billion (estimated at US$1.86 billion) from the same period last year, while earnings rose 10 cents a share to 18 cents a share (estimated 16 cents a share). But the highlight was that AMD was evidently soaking up market share from Intel for server chips (a higher margin market compared to desktop computing), beating expectations for sales of both its Epyc server chips and Ryzen PC Processors. The outlook for the company as a result looks mostly positive, as it manages to obtain more market share in the more lucrative laptop computing space as well as server and data center space. The upcoming console offerings from Microsoft and Sony should also helped improve the company's sales, as will its server chips segment. The chipmaker's stock surged 10.34% in after-hours trading as a result.

Indexes Daily Change (%) Net Change Closing Price
Dow -0.77% -205.49 26,379.28
S&P500 -0.65% -20.97 3,218.44
Nasdaq -1.27% -134.18 10,402.09
*Source: Bloomberg

The dollar was mixed in the G10 basket of currencies on Tuesday, as some currencies suffered a pullback following the weeklong rally against the greenback. But risk aversion was clearly the theme on Tuesday again in the foreign exchange market as the Japanese yen and Swiss franc continued to be among the top performers against the dollar. The Fed's statement on Tuesday to extend seven of its nine emergency lending programs by three months likely also impacted investors sentiment, although the effects on the dollar had little lasting effect. But with the Fed's upcoming monetary policy decision on Thursday at 2am (GMT +8), it looks more likely that we will see the dollar trade close to flat with some skew towards the downside as a result of expectations of little change to its current monetary policy tools while maintaining a more-dovish-than-before tone.

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Risk aversion was the theme among market participants on Tuesday as all safe haven assets trended higher. Gold continued to rise past 1,950's level despite reversing some of its gains after peaking at 1,981.27. The Japanese yen advanced against both the dollar and the yen. US Treasuries rose across the board, pulling benchmark 10-year yields down by 3.6bps to 0.58%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.83% +16.19 1,958.43
Silver -0.76% -0.19 24.40
USD/JPY -0.27% -0.28 105.09
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -1.3bps 0.14%
10-Year -3.6bps 0.58%
30-Year -4.3bps 1.22%
*Source: Bloomberg

Oil futures fell, as supply concerns start to creep into oil prices without the support of a falling dollar. The American Petroleum Institute's weekly report suggested that crude oil stockpiles increased for the week ended July 24th, adding to the pressure on oil prices as we move into August (where OPEC+ will start to taper production limits). Comments from US Energy Secretary Dan Brouillette that he expects oil prices to average to about US$50 per barrel in the second half of 2021 may have helped support oil prices. The outlook for oil however, has not changed much. The upcoming inflow of supply from OPEC+ and potentially dampened demand from China as a result of the severe floods in several cities looks more likely to put downward pressure in the upcoming weeks. Oil supply looks to be particularly concerning as floating storage supplies were reportedly still more than twice than that of in 2019 even as numbers start to fall. On the demand side, an imbalanced global recovery may potentially put less-than-expected upward pressure on oil prices as well, especially as we see implied motor gasoline demand starting to peak in the US and as airlines scale back on flight schedules with momentum from a spike in demand for air travel fading.

Oil Futures Daily Change (%) Net Change Closing Price
Brent -0.44% -0.19 43.22
WTI -1.35% -0.56 41.04
*Source: Bloomberg

In Asia, Japanese stocks may continue to face downward pressure as the yen continues to strengthen. The Nikkei was trading lower while the KOSPI and ASX200 were trading higher in the early hours of Wednesday. Futures tracking major indices in the US were trading higher as of 8.55ma (GMT +8), signalling the higher-than-usual volatility in the equities market as more companies continue to report quarterly earnings.]

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -0.62% -138.50 22,518.88 0.36
KOSPI +0.61% +13.86 2,270.85 0.38
ASX200 +0.22% +13.05 6,033.60 0.38
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures +0.13% +33.00 26,330.00 8:54:57 AM
US Futures +0.23% +7.25 3,220.25 8:55:00 AM
Nasdaq Futures +0.36% +38.00 10,578.00 8:55:01 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • Australia Q2 Inflation Rate (Core CPI/CPI) (9.30am)
  • US Jul 24th Mortgage Applications (MBA) (7pm)
  • Fed’s Monetary Policy Decision (2am)
  • Fed Chair Powell’s Post Monetary Policy Meeting Press Conference (2.30am)

Companies reporting earnings next include (all timings in GMT +8):

  • General Motors (8pm)
  • General Electric (8pm)
  • Boeing (10.30pm)
  • Citigroup (11pm)
  • Qualcomm (4.45am +1)
  • Paypal (5am +1)