Monday, March 2, 2020

Can JD.com Stand Tall Amid Coronavirus Fears?

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What’s happening: JD.com is scheduled to report its fourth-quarter results before the opening bell on Monday, March 2. While shares of this Chinese ecommerce company have outperformed over the past year, expectations are for a significant decline in earnings.

What happened: Amid the coronavirus outbreak, JD received accolades for assisting the community. But will these initiatives keep investor sentiment positive while the company reports a decline in fourth-quarter earnings? Analysts have noted the company’s strength and cited several long-term catalysts for the stock. However, JD is not immune to fears of a slowdown in sales due to the virus outbreak in China.

  • The consensus revenue estimate stands at $23.8 billion, representing 21.4% year-over-year growth.
  • The estimate for earnings is 6 cents per share, a 14.3% decline from the same quarter in the previous year.

Why it matters: JD’s retail division is expected to have provided a strong boost to the latest quarter results, driven by momentum in lower-tier cities. Backed by the company’s expansion efforts in these regions, its social ecommerce platform Jingxi has seen 3/4 of its new users coming from lower-tier cities in the last quarter. The company’s strong revenue growth has largely been driven by new users in previous quarters.

JD’s earnings have been impacted by heavy investments in various verticals of its business. The company has made efforts to improve customer experience, which could attract more users to its ecommerce platform. The online retailer has also been focusing on growing its ecommerce presence globally and has made investments in the emerging markets.

Meanwhile, JD has been increasing its marketing spend at home, given the stiff competition it is facing from archrival Alibaba.

Extending its good Samaritan image, the company has allocated more than RMB 200 million to support the fight against coronavirus. Apart from making donations of masks and medical supplies, the company has announced plans to hire more than 20,000 workers to “minimize the impact of the epidemic on employment.” The company is also using smart technologies like self-driven vehicles to make deliveries in affected areas.

How the shares have performed so far: JD’s stock has gained around 33% over the last 12 months, significantly outperforming the broader S&P 500 index, which has risen 6.5% in the same period. Shares of the company have climbed around 17% in the last three months. Concerns around the company’s declining earnings and the impact of coronavirus could exert pressure on the stock. Also, some traders may consider the elevated share price as a good take-profit opportunity. Nonetheless, investor sentiment is generally positive and there is optimism that JD will come out stronger due to the investments.

What to watch: The market will watch the Nasdaq 100, where JD is a major constituent. The Chinese ecommerce company’s revenues could continue to grow, given its huge investments and marketing expenses. The earnings call is also expected to provide more details of the company’s plans to spin off its logistics segment. The Beijing-based retailer’s outlook for the next quarter will indicate the extent of impact the company is facing from coronavirus.

The Markets Today

     

Investors will be watching the Japanese yen today, with the currency surging to a 20-week high versus the US dollar on Friday.

Context: The Japanese yen finished the session on a higher note on Friday amid comments from Federal Reserve Chair Jerome Powell suggesting a decline in interest rates due to the coronavirus risks.

Details: The yen posted its biggest daily rise since May 2017, with investors preferring the safe-haven currency. The currency had climbed as high as 107.52 against the greenback.

The Japanese yen traded up around 1.5% at 107.92 in the previous session, with the dollar index down 0.324% to 98.127. The index fell around 1% on the week on higher chances of a rate cut. Markets were expecting a possible rate cut of at least 25 basis points at the Fed’s March meeting. Some traders were expecting a rate cut decision even sooner.

Mark McCormick, global head of foreign exchange strategy at TD Securities, said the yen is performing “significantly stronger from where it was even last week, when I was hearing people saying that the yen wasn’t a safe-haven anymore.”

The coronavirus, which is spreading rapidly outside China’s borders, has fanned fears of a pandemic, with an increasing number of countries reporting their first cases. The WHO has also raised its risk alert level to “very high” following the global spread.

The Korea Centers for Disease Control and Prevention confirmed 476 new coronavirus cases, taking the total to at least 4,212 infections in South Korea. There have been 22 deaths from COVID-19 in South Korea so far. The number of infections in Italy climbed to 1,694, while cases in France rose to 130. The number of deaths in Iran was the highest outside China, with the country confirming 11 additional deaths from the virus, bringing its total death count to 54.

The USD/JPY pair continued its momentum from Friday and is trading 0.23% higher at 108.32. The yield on the two-year US Treasury note declined around 32.5% last week following expectations of easing monetary policy.

Why it matters: With the coronavirus outbreak claiming over 3,000 lives globally and spreading to other regions of the world, investors are preferring the Japanese yen due to its safe-haven status.

What to watch: Investors are awaiting consumer confidence data tomorrow, which will be a major factor in the currency’s performance. The consumer confidence index, which stood at 39.1 in January, is expected to increase to 40.6 for February.

Other Markets: Most European indices closed lower on Friday, with the FTSE 100, DAX 30 and French 40 down 3.18%, 3.86% and 3.38%, respectively.

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What else to watch today

     

Turkey’s manufacturing PMI, Spain’s tourist arrivals, manufacturing PMI and new car sales, Italy’s manufacturing PMI and GDP annual growth rate, France’s manufacturing PMI, Germany’s manufacturing PMI, Eurozone’s manufacturing PMI, South Africa’s manufacturing PMI and total vehicle sales, UK’s mortgage lending, Mexico’s business confidence and manufacturing PMI, Brazil’s manufacturing PMI and balance of trade, Canada’s manufacturing PMI as well as the US manufacturing PMI, ISM manufacturing PMI and construction spending.