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Pinduoduo’s shares spike following revenue beat

 

Tuesday, August 30, 2022

The news shaping the markets today

Ukraine commenced a counter-offensive to regain control of the Kherson city occupied by Russian forces. Despite the ongoing tensions, the US dollar index traded slightly lower after the news.


Australia’s building permits fell by 17.2% to 13,595 units in July, worse than the consensus estimate of a 2.0% decline, which exerted pressure on the AUD/USD forex pair.


Japan’s unemployment rate came in unchanged at 2.6% for the third month in a row in July. The latest reading also matched market expectations, sending the JPY/USD pair higher in forex trading this morning.


Iran’s annual inflation rate slowed to 52.2% in August, from 54.0% a month ago. Despite this being the lowest reading since May, the IRR/USD forex pair remained broadly flat.


The Dallas Fed general business activity index for manufacturing in Texas improved to -12.9 in August, from July’s reading of -22.6. However, the figure remained in the negative zone, which sent the Nasdaq 100 lower by more than 100 points on Monday.

 

What’s happening: Shares of Pinduoduo jumped on Monday, after the company reported results for its second quarter.

What happened: The Chinese company reported upbeat quarterly revenues on Monday, driven by a major shopping festival.

However, revenue from one of its major segments recorded a sharp decline for the second quarter.

How were the results: China’s largest agriculture platform reported strong growth in net income for the quarter that ended June 30.

  • Revenues surged 36% to 31.44 billion yuan, beating the consensus estimate of 23.68 billion yuan.
  • Net income attributable to ordinary shareholders jumped to 8.9 billion yuan, from 2.41 billion yuan in the year-ago period.
  • Non-GAAP earnings jumped 165% to $1.13 per ADS, topping market expectations of 39 cents per ADS.

Why it matters: Pinduoduo had initially focused on attracting consumers in smaller regions in China. However, the company has been expanding its reach to top-tier cities in the country.

An economic slowdown in China impacted overall business growth. China’s retail sales rose just 2.7% year-over-year in July, slowing from 3.1% growth in the previous month and coming in much below expert estimates of 5% growth.

Pinduoduo’s revenues from online marketing services and others jumped 39% year-over-year to $3.76 billion, while revenues from transaction services surged 107% to $928.1 million. However, revenues from merchandise sales contracted 97% from a year ago to $7.6 million during the quarter.

Pinduoduo recorded a non-GAAP operating profit of $1.57 billion, representing a 231% jump from the same quarter last year. The company generated $2.89 billion in operating cash.

The company’s results were helped by the 618 shopping festival in China. Management did not issue any guidance for the ongoing quarter.

How shares responded: Pinduoduo’s US-listed shares jumped 14.7% to close at $66.04 on Monday, following the release of quarterly results. The stock has climbed around 30% over the past six months.

What to watch: Traders will keep an eye on Pinduoduo’s international expansion plans, with the company looking to enter into the US market. Beijing and Washington also reached a deal to share audits of US-listed Chinese companies last week, which is expected to aid Pinduoduo’s entry into the country.

The markets today

Gold will be in focus today after closing with a modest loss on Monday

Context: Gold futures settled slightly lower on Monday, as traders continued to assess comments from Federal Reserve Chairman Jerome Powell last week.

Details: During his speech at the Jackson Hole economic symposium, Fed chief Jerome Powell said that the central bank remains committed to bringing inflation down to the 2% target. A tight monetary policy is needed to meet this objective.

Over the weekend, ECB policymakers reportedly discussed a higher interest rate hike of 75 basis points at their September meeting.

The US dollar came under pressure on Monday after hitting a 20-year higher earlier in the session, which limited losses for gold.

The US dollar index, which measures the greenback’s performance versus a basket of major currencies, closed mostly flat on Monday but has gained around 2.6% so far this month.

Gold for December delivery declined 10 cents to settle at $1,749.70 an ounce on Monday, while silver for December delivery lost 16 cents to close at $18.67 an ounce. December copper shed 9 cents to reach $3.61 a pound.

What to watch: Traders await the release of US jobs data for August on Friday, with a lower NFP (nonfarm payrolls) figure likely to support gold prices ahead. Markets will also continue monitoring the US dollar.

Other Markets: European trading indices closed lower on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 down by 0.61%, 0.83% and 0.81%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY – 138.54 and 138.61 Positive
AUD/USD – 0.6875 and 0.6883 Negative
WTI Crude Oil – 96.51 and 96.77 Negative
FTSE 100 – 7415.81 and 7439.20 Positive
Dow Jones – 32039.92 and 32196.09 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (0.9998, 0.01%) Dow ($32,144, 0.22%) Brent ($102.27, -0.6%)
GBP/USD (1.1699, -0.07%) S&P500 ($4,041, 0.24%) WTI ($96.61, -0.4%)
USD/JPY (138.57, -0.11%) Nasdaq ($12,525, 0.26%) Gold ($1,747, -0.2%)

What else to watch today

South Africa’s money supply M3, private sector credit, Spain’s inflation rate and industrial confidence indicator, Italy’s industrial sales, UK’s consumer credit, mortgage approvals, mortgage lending and net lending to individuals, Eurozone’s economic sentiment indicator, industrial confidence indicator, selling price expectations, services confidence indicator, consumer confidence indicator and confidence price trends over next 12 months, Mexico’s unemployment rate, Germany’s inflation rate, Canada’s current account, as well as US Redbook index, S&P CoreLogic Case-Shiller 20-city home price index, FHFA’s house price index, number of job openings, CB consumer confidence, Dallas Fed services index and API’s data on crude oil stocks.


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