Friday, August 21, 2020

Investors Remove Alibaba Stock from Cart After Q1 Print

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News shaping
the markets today

     

What’s happening: Shares of Alibaba Group Holding Ltd. edged lower on Thursday despite China’s most valuable company crushing market estimates for its fiscal first quarter.

What happened: The lockdown in China due to the covid-19 outbreak resulted in a massive spike in online spending by customers.

Although Alibaba faced supply disruptions earlier this year, the company said that business had returned to pre-covid-19 levels. Despite this and the strong quarterly results, the Asian e-tail behemoth’s stock slipped on Thursday.

How were the results: Alibaba reported strong growth in sales and earnings for the fiscal first quarter, with both figures surpassing expectations.

  • Revenue surged to 153.75 billion yuan, from 114.92 billion yuan in the same quarter last year, beating the consensus view of 148 billion yuan.
  • Net income jumped to 47.59 billion yuan, or 17.36 yuan per share, up significantly from 21.26 billion yuan, or 8.06 yuan per share, in the year-ago quarter.
  • Adjusted earnings per rose to 14.82 yuan per share, from 12.55 yuan per share last year, exceeding the consensus estimate of 13.82 yuan per share.

Why it matters: Earlier in February, Alibaba had issued a warning that the coronavirus outbreak had impacted its supply and logistics operations. With the company forced to shut down its office, factory and stores, Alibaba’s production also suffered significantly during the period.

Despite this, the pandemic benefitted the company ultimately, as it pushed more consumers to shop online for necessities and other products. The trend continued even after easing of restrictions.

CEO Daniel Zhang said during the earnings call, “We were well positioned to capture growth from the ongoing digital transformation, which has been accelerated by the pandemic, in both consumption and enterprise operations.”

Alibaba recorded a spike in users, with annual active consumers rising by 16 million to 742 million during the quarter. Mobile monthly users also climbed to 874 million, a rise of 28 million versus the previous quarter.

“Our domestic core commerce business has fully recovered to pre-COVID-19 levels across the board,” CFO Maggie Wu said.

The company is, however, facing severe issues in the US, with President Donald Trump’s crackdown on Chinese tech companies.

How shares performed so far: The US-listed shares of the Chinese company slipped 1% to close at $257.97 on Thursday. Alibaba’s shares have climbed 19% over the previous three months.

What to watch: With business returning to pre-covid-19 level in its domestic market, Alibaba is expected to report strong gains in the current quarter. Any news of escalating tensions between the world’s two biggest economies is unfavourable for the ecommerce giant.

The Markets Today

     

British stocks will be in focus today, ahead of a basket of economic reports from the region.

Context: UK stocks closed lower on Thursday following the release of minutes from the Federal Reserve meeting late the previous day. Downbeat jobless claims data from the US also reinforced a negative mood in the market.

Details: The US Labor Department reported that initial jobless claims had climbed back above 1 million in the latest week due to a resurgence of covid-19 in the country. The reversal of trend in new unemployment claims is likely to exert pressure on the Congress to restart talks on the new coronavirus rescue package.

London’s FTSE 100 index declined 1.6% to 6,013.34 on Thursday, with shares of financial and mining firms recording the steepest decline. However, the FTSE 250 mid-cap index slipped only 0.5% to end the trading day at 17,496.43, with the index getting some support from retail stocks.

Shares of Antofagasta lost around 6% on Thursday, after the copper miner reported a more than 15% decline in its revenues for the first half of the year and lowered its interim dividend by 42%. John Laing’s shares shed 7% after the infrastructure group posted a decline in its net asset value.

Early Friday, the UK released data on consumer confidence, which came in unchanged at -27 for August.

What to watch: Investors await various economic reports from the UK, including retail sales, public sector net borrowing, manufacturing PMI, services PMI, composite PMI and CBI industrial trends orders.

Retail sales in the UK, which surged 13.9% in June, are expected to rise 2% in July. The IHS Markit/CIPS UK manufacturing PMI is expected to improve to 53.8 in August, from a reading of 53.3 in July, while services PMI is projected to rise to 57, from the previous reading of 56.5. The IHS Markit/CIPS UK composite PMI is expected to improve slightly to 57.1 in August, versus 57 in July.

Markets will continue to focus on the covid-19 numbers, with total cases surpassing 22.5 million globally.

Other Markets: US indices trading closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.17%, 0.32% and 1.06%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Turkey’s consumer confidence and car production, France’s manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, Eurozone’s manufacturing PMI, services PMI, composite PMI and consumer confidence, Spain’s balance of trade, Mexico’s retail sales, Canada’s new housing price index and retail sales as well as the US manufacturing PMI, services PMI, composite PMI, existing home sales and Baker Hughes crude oil rigs.