Good morning everyone,
US markets were closed on Monday due to a public holiday, but investors still needed to keep a watchful eye after Apple delivered an update that is likely to be met with a major reaction when trading starts again on Tuesday. The firm said that it does not expect to meet its revenue forecast for the first quarter of 2020 (its fiscal second quarter) due to both lower iPhone supply and lower Chinese demand caused by the coronavirus epidemic.
The surprise update yesterday did not include a new forecast for the quarter but instead revealed that all of Apple’s stores in China have been closed and that “iPhone supply shortages will temporarily affect revenues worldwide”. Apple makes almost all of its products in China and the firm said that it is experiencing a slower return to normal operating conditions than it had anticipated. It comes after its quarterly earnings update last month in which Apple provided a wider range of guidance than normal, with CEO Tim Cook stating he “anticipates some level of issue” around the coronavirus. Apple shares have nearly doubled in the last year to $325 per share, with the company sitting on a $1.42trn valuation.
Early indications are that the stock will open down 3.5% (at time of writing) – the price approximately marked by the black horizontal line below. This is still just over 3% higher than the $302 we saw after the initial downturn caused by the coronavirus.
HSBC tumbles on sizable profit drop
HSBC’s annual results today were expected to make for uncomfortable reading, but few – if anybody – expected profits to be down more than 30%. The bank has taken drastic measures today, including plans to shed £77 billion of assets, 35,000 jobs and slashing the size of its investment bank, as it bids to return to growth. It is difficult to say whether these measures will make HSBC, which has trailed its rivals for some time, the competitive bank it is craving to become in the short-term at least, particularly with the current weakness in Asia, its key market. One silver lining for shareholders is the company has maintained its dividend although it will suspend any buy backs for 2 years. Shares have suffered their biggest drop since October 2017 and are just 1% from 2020 lows, a level which has provided support on 2 occasions in the last 3 months.
Mining giant Glencore reports first loss in 4 years
Apart from its commitment to slash emissions, there is almost nothing to cheer about in Glencore’s preliminary results this morning. While last year’s trade war and weak commodity prices will have played a role in Glencore’s poor recent performance, the brutal truth is that it’s position as the world’s number one exporter of thermal coal is becoming a millstone around its neck and is partly why it has made its first loss in 4 years. The world is slowly weaning itself off coal and therefore its position in the sector is no longer an advantage. Glencore has committed to lowering coal production but of course this won’t happen overnight.
Chinese stocks tumble on Apple warning
While US traders took a break on Monday, Chinese shares saw their recovery from the coronavirus sell-off disrupted after Apple’s surprise revenue warning. The CSI 300 index – which includes the 300 largest stocks traded on the Shanghai and Shenzen stock exchanges – reversed early gains to tumble over 0.5%, while Hong Kong’s Hang Seng Index, which tracks the performance of the largest Hong Kong listed stocks, plunged 1.3%. The Apple news overshadowed hopes of likely economic stimulus from China’s central bank to dampen the impacts of the epidemic was a major source of optimism.
Meanwhile, China reported 98 new deaths from coronavirus, taking the total in mainland China to 1,868 while the number of cases rose to 72,436 to the end of Monday. However, both the number of deaths and of new cases were lower than the previous day.
German central bank outlook tempers China stimulus optimism
Both the FTSE 100 and FTSE 250 made gains on Monday on a light trading day, as investors globally reacted positively to the China stimulus reports pre Apple’s bombshell news. The optimism was tempered by a pessimistic outlook from the German central bank on the country’s growth prospects, reigniting recession fears. Nonetheless, in the FTSE 100 miners rose on Monday, with Glencore stock up 1.2% and Antofagasta up 1.1%, as metal prices posted a positive day across the board. In the FTSE 250, after soaring by more than 20% last week, housebuilder Galliford Try sank by 6.5%. At the top end of the FTSE 250, Aston Martin Lagonda gained 6.8%. Two weeks ago, the company was rescued from the brink of collapse by billionaire Lawrence Stroll, who is injecting close to £200m as part of a plan to raise £500m in emergency funds. As part of the deal, Stroll will rename his Formula One team after the luxury carmaker.
FTSE 100: +0.3% Monday, -1.5% YTD
FTSE 250: +0.2% Monday, -0.3% YTD
Stocks to watch
Walmart: Walmart’s solid share price growth – more than 90% since the start of 2016 – has levelled out over the past six months, and the firm is down slightly year-to-date. The supermarket giant reports its latest quarterly update on Tuesday morning, with online sales and progress towards turning e-commerce into a profit generator likely to be a major focus for investors. Wall Street analysts are positive on the stock, with 21 rating it a buy or overweight, 10 a hold, and one an underweight. The average 12-month price target is $129.40, versus its $117.89 Friday close, with a range between $105 and $155.
Medtronic: Medical device giant Medtronic is sitting on a $157bn market cap after delivering a 27% share price increase over the past 12 months. At the end of last week the company announced the acquisition of Digital Surgery, a UK-based robot surgery firm, and while the deal is not likely to be significant financially for Medtronic, it does point to where the company sees some its future, as robot-assisted surgery is a major growth market. Analysts favour a buy rating on the stock, with 18 buy or overweight ratings, six holds, and one sell. The company reports its latest quarterly earnings on Tuesday morning.
Ecolab: Minnesota-based Ecolab produces water, hygiene and energy technologies, serving clients ranging from hotels to the oil industry. The firm has posted a 27% share price gain over the past 12 months, and analysts have middling expectations for the next year, with an average price target of $200.29 versus its $207.31 Friday close. On its last earnings call in late October, analysts focused their questions on the company’s outlook on pricing, its industrial division, and comments made by management on re-prioritizing new business development as its sales team’s primary focus. Medtronic will deliver its Q4 update on Tuesday.
Having endured a sell-off on Monday, resilient cryptoassets were back in the ascendency on Tuesday. Ethereum and XRP led the charge back to higher ground, with Ethereum up almost 10% from lows to return to $264.
Meanwhile XRP rebounded from a floor of $0.27 to climb back to nearly $0.29 this morning, still at present holding rising support and Bitcoin edged back towards its $10,000 mark, up at $9,742.
All data, figures & charts are valid as of 18/02/2020. All trading carries risk. Only risk capital you can afford to lose.