The day ahead will see two US corporate behemoths Intel and Coca-Cola report Q3 results while the lack of US stimulus puts the spotlight on weekly jobless claims.
Headlines
- European stocks rollover, lose nerve on US stimulus
- UK government debt at its highest in 60 years
- New York virus cases reach 2000 per day for 1st time since March
- Brazilian volunteer in AstraZeneca COVID vaccine trial dies
- Bitcoin jumps to $12,800 as PayPal announces crypto trading feature
- Snap stock jumps 30% after big beats of Snapchat-owner’s Q3 earnings estimates
Market moves
- Copper reaches new 2-year high, $7000 per tonne
- GBP/USD shoots up 200 pips above 1.31
- EUR/USD notches up 4-day win streak
- FTSE 100 falls below 58000 to test 5-month low
Commentary
Wednesday was an ugly day across European stock markets as earnings season kicked off in the region. New economically damaging lockdown restrictions make it hard to take the view that any European earnings recovery is sustainable.
The British pound was the standout mover in FX markets. News that the UK and EU would restart stalled post-Brexit trade talks and as the EU’s top negotiator said a deal is within reach. Markets had never really bought into Johnson’s threat to walk away and bought heavily into the latest news that confirms the view a last-minute – maybe ‘skinny’ – trade deal can be done.
Day Ahead
Intel Q3 earnings
Intel has upstaged its own earnings day with a huge divestiture of its flash memory business. It will sell the unit to South Korea’s SK Hynix for $9 billion. Falling memory prices have meant it was a losing division for Intel for 5 years and management appear to have taken the view that now is not the time to invest in a rebound. The timing may be coincidental or management are looking to make a statement as top and bottom line revenue falls. EPS is projected to slip to $1.11 from $1.42 last year while revenue is projected to decline to $18.24 billion from $19.19 billion last year. The decision to delay the release of its next generation of chip tugged the shares down
Coca-Cola Q3 earnings
Coca-Cola is well established as a defensive stock, geared towards earning yield and a Warren Buffet top holding. But those yield hungry investors might not take much comfort what unusually unsteady earnings. Consensus EPS is $0.46 (-18%) and revenues are expected at $8.37 billion (-11.9%). Coco-Cola stock (KO) is down 9.4% ytd, which look very unfavourable compared to the 6.5% gain in the S&P 500.
Coca-Cola is very exposed to the pandemic from its ‘on the go’ business that includes restaurants, bars and entertainment venues. Exposure to travel and leisure is going to be a problem for the foreseeable future so management are taking the tough decisions with its 400 core brands. Tab soda was axed any many others – those with niche jurisdictions and lower revenues will be likely follow. The main job management has to do in its conference call is convince Buffet and co that cutting out superfluous brands will do enough to cut costs enough to keep the dividend safe.
US jobless claims
Claims data lost its importance during the Q3 recovery but the longer Q4 goes on without a new US stimulus package, the more that changes. Last week the claims data showed some of the first signs of really rolling over, upending a multi-month improvement. Claims hit their highest since August at 898,000. Consensus for this week is an improvement to 860,000. The benefit of another big miss might be to wake up partisan politicians into agreeing more stimulus.
