Week Ahead: Earnings season and US-China trade deal in focus
US earnings season gets underway next week as the big banks begin reporting on Jan 14th. Weak corporate earnings growth could dent optimism around US stocks, but with the fourth quarter of 2019 out of the way, the market’s real focus is going to be whether we get the 10% earnings growth forecast in 2020.
Consensus estimates indicate a 1-2% decline in Q4 earnings, but the tendency to beat expectations suggests we will see earnings growth, albeit small.
Last year we saw multiple expansion massively outweigh earnings growth as the driver of the 28% rise in the S&P 500 last year. This poses problems as it means valuations are already rather stretched and reliant on strong EPS growth in 2020. However, ignoring the 2018 Christmas drubbing, the S&P 500 has only risen by a modest 10% from the 2018 highs.
US, China to sign phase one trade deal
Markets will surely take heart as January 15th approaches – that’s the deadline for signing the phase one trade deal the US and China managed agree in December. But there have been too many falls at the final hurdle to say that this is deal is done until the ink is dry. Markets could yet be in for a surprise, and even if phase one is agreed, we’ll then have to face the reality that phase two negotiations could be even more complex.
Germany, China growth data
World economic growth is expected to tick higher to 2.5% this year, but will German FY 2019 GDP and China Q4 growth figures shake the foundations of those predictions? Both have seen growth slow thanks to the US-China trade war, while Germany has also struggled due to Brexit uncertainty. The German economy is expected to have expanded 0.5% during 2019, while China’s Q4 reading is expected to tick higher to 6.1% from 6% in Q3.
US CPI – Fed to let inflation run hot
US inflation data is due for release on Tuesday 14th. Expectations are for price growth to moderate to 2% from 2.1%. The Federal Reserve in December made clear that it is prepared to let inflation run hot to compensate for months where it runs below target.
Jan 14th – JPMorgan Chase & Co – Q4
Jan 14th – Wells Fargo & Co – Q4
Jan 14th – Citigroup – Q4
Jan 14th – Markit – Q4
Jan 15th – Bank of America – Q4
Jan 15th – United Heatlh – Q4
Jan 15th – BlackRock – Q4
Key Economic Events
(All times GMT)
09.30 GMT – Jan 13th – UK Monthly GDP / Production Data
15.00 GMT – Jan 13th – CAD BOC Business Outlook Survey
03.00 GMT – Jan 14th – China Trade Balance
13.30 GMT – Jan 14th – US Inflation Data
07.00 GMT – Jan 15th – Germany Full Year 2019 GDP Growth
09.30 GMT – Jan 15th – UK Consumer Price Index
15.30 GMT – Jan 15th – US EIA Crude Oil Inventories
Jan 15th – US-China Phase One Trade Deal Signing Ceremony
12.30 GMT – Jan 16th – ECB Monetary Policy Meeting Accounts
13.30 GMT – Jan 16th – US Retail Sales
15.30 GMT – Jan 16th – US EIA Natural Gas Storage
02.00 GMT – Jan 17th – China GDP
09.30 GMT – Jan 17th – UK Retail Sales
15.00 GMT – Jan 17th – US Preliminary University of Michigan Sentiment
Week Ahead: Brexit crunch time, US earnings season kicks off
Welcome to your guide to the week ahead in the markets.
European Council Summit
It’s make or break time for Brexit. EU heads of state hold their next summit this week, starting on Thursday. The meeting also marks UK Prime Minister Boris Johnson’s last chance to agree a Brexit deal, but the UK’s latest proposals have not met a warm reception. If nothing is forthcoming, the recently passed Benn Act obligates the PM to request an extension by Saturday at the latest. Boris seems to have some plan to circumnavigate the legislation, although Downing Street is unsurprisingly quiet on the details.
The third quarter earnings season on Wall Street gets underway this week, with S&P 500 companies seen posting a year-on-year earnings per share decline for the third straight quarter.
As usual banks get the season off to a start. Financials posted decent gains in Q3, boosted by a strong +4.5% gain in September.
JP Morgan (Tuesday) is expected to deliver EPS of $2.45. In Q2 the company reported net income up 16% to $9.65 billion from last year’s $8.32 billion. EPS beat the $2.50 expected at $2.82, rising from $2.29 in the same quarter a year before. Net interest income is the concern in early September at the Barclays conference boss Jamie Dimon said he sees full-year 2019 net interest income down $500M from the last guidance.
Citigroup (Tuesday) posted good numbers in Q2 as well with EPS of $1.95 topping the $1.80 expected, although trading revenues were down. For Q3 the Street expects EPS growth of c13% at $1.97 a share. Revenues are expected to rise a little less than 1% to $18.54bn.
Wells Fargo (Tuesday) beat in Q2 but lower net interest income and comments about higher expenses acted as a drag. EPS for Q3 is seen as at $1.20, up 5.3% year-on-year, on revenues seen –5% at $20.85bn. In September the bank’s CFO lowered the net interest income for the third time in five months, with the company now seeing this key profit metric down 6% this year compared with 2018. Bulls will be clinging to anything positive on net interest income.
Netflix (Wednesday) has had a tough comedown and Wall Street has turned cold on the stock as the risk of a competitive spiral from the rise of rival streaming services threatens to derail the company’s remarkable growth. Investors have shown concern about subscriber growth rates that have started to falter. In Q2 global net adds of 2.7m massively missed expectations for 5m.
On the high frequency economic data front we are looking at the RBA meeting minutes and Chinese inflation figures early on Tuesday, with the German ZEW economic sentiment survey likely to be key for the European session.
Wednesday sees the CPI inflation numbers for the UK and Canada, with US retail sales also in focus.
Thursday, we have the Australian unemployment data, which is a key factor in the RBA’s thinking on monetary policy, before the Phill Fed manufacturing index ahead of the US session.
On Friday the focus will be the data out of China, with GDP, industrial production and fixed asset investment figures due.
Tentatively scheduled for Friday is the US Treasury Currency Report, which outlines countries that the US deems currency manipulators.
Earnings season is upon us again, here are the notable releases this week.
|October 15th||JPMorgan Chase & Co|
|October 15th||Johnson & Johnson|
|October 15th||Wells Fargo & Co|
|October 17th||Morgan Stanley|
|October 17th||Philip Morgan|
|October 18th||American Express|
Coming Up in XRay
There are plenty of great sessions coming up on XRay this year. Watch them live on XRay or catch up in a time to suit you.
Don’t forget to ask your questions in advance to firstname.lastname@example.org
|07.15 GMT||Oct 14th||European Morning Call|
|10.00 GMT||Oct 14th||LIVE Earnings Season Preview|
|15.45 GMT||Oct 15th||Asset of the Day: Oil Outlook|
|19.00 GMT||Oct 15th||LIVE Trader Training|
|18.00 GMT||Oct 17th||The Stop Hunter’s Guide to Technical Analysis (Part 7)|
Key Economic Events
There are lots of releases this week that are likely to impact the markets. Also remember that trade tensions and Brexit rumble on which make also cause volatility.
|09.30 GMT||Oct 15th||RBA Monetary Policy Meeting Minutes|
|09.00 GMT||Oct 15th||German ZEW Economic Sentiment|
|08.30 GMT||Oct 16th||UK CPI|
|12.30 GMT||Oct 16th||US Retail Sales|
|14.30 GMT||Oct 16th||EIA Crude Oil Inventories|
|00.30 GMT||Oct 17th||Australia Employment Change, Unemployment Rate|
|08.30 GMT||Oct 17th||UK Retail Sales|
|12.30 GMT||Oct 17th||Philly Fed Manufacturing|
|02.00 GMT||Oct 18th||China GDP, Industrial Production|
Week Ahead: Doves to dominate at Jackson Hole
Welcome to your guide to the week ahead in the markets.
As global bond yields fall and investors worry about a recession, all eyes will be on the central banker meeting this week in Jackson Hole. Whilst it’s rare for major policy announcements to emerge from the symposium, markets will be fixated on any signals from the Fed and others about the path of interest rates.
Minutes from the Fed’s last meeting will be parsed for clues about future rate cuts. With markets pricing in more cuts this year, these minutes will help show exactly where members stand on the issue.
A few earnings to watch for – Anglo-Australian miner BHP Billiton and some US retail sector stocks including GAP and Target bring up the rear as US second quarter earnings season winds down.
There are still a lot of earnings releases in the current week, including big name brands Target, Salesforce and Gap.
|Approx 22.30 GMT||19th Aug||BHP Billiton Ltd – Q4|
|Pre-Market||20th Aug||Home Depot – Q2 2020|
|Pre-Market||20th Aug||Medtronic Plc – Q1 2020|
|Pre-Market||21st Aug||Lowe’s Companies Inc – Q2|
|Pre-Market||21st Aug||Target – Q2|
|After-Market||22nd Aug||Gap – Q2|
Join our XRay sessions live, or watch them on catch-up at a convenient time. This week, we’ll be covering the following topics in our live video streams.
|07.15 GMT||19th Aug||European Morning Call|
|17.00 GMT||19th Aug||Blonde Markets|
|15.30 GMT||20th Aug||Asset of the Day: Bullion Billions|
|15.45 GMT||20th Aug||Asset of the Day: Oil Outlook|
|13.00 GMT||21st Aug||Asset of the Day: Indices Insights|
There’s a lot going on this week, with special notice paid to the Red meeting in Jackson Hole.
|08.30 GMT||21st Aug||UK Public Sector Net Borrowing|
|12.30 GMT||21st Aug||Canadian CPI|
|18.00 GMT||21st Aug||FOMC Meeting Minutes|
|07.15 – 08.00 GMT||22nd Aug||Eurozone Member PMIs (Services, Manufacturing)|
|11.30 GMT||22nd Aug||ECB Monetary Policy Meeting Accounts|
|Day 1||22nd Aug||Federal Reserve Jackson Hole Symposium|
|22.45 GMT||22nd Aug||New Zealand Retail Sales|
|12.30 GMT||23rd Aug||Canada Retail Sales|
|Day 2||23rd Aug||Federal Reserve Jackson Hole Symposium|
Week Ahead: Inflation readings to shape central bank views
There are a lot of things going on this week, with inflation leading the headlines.
With investors betting the Federal Reserve will cut interest rates again in September, Tuesday’s US inflation figures will be of key importance for the direction of global markets. Core CPI advanced 2.1% in June, its biggest increase in a year and a half. If inflation pressures continue to build, it could undermine doves on the FOMC calling for more hikes. UK inflation figures are released on Wednesday.
China and Germany growth
Fears about a slowdown in China and Germany are at the heart of investor concerns for the global economy. As such a batch of data from the two countries this week will be important for risk assets. China’s industrial production figures and the German preliminary GDP print on Wednesday will be the most closely watched.
Walmart and US retail sales
Q2 earnings season is well past its peak but US retail giant Walmart delivers its quarterly numbers on Thursday before the market opens. Q1 earnings were a positive surprise with EPS of $1.13 beating expectations of $1.02. The key comp sales number hit 3.4%, making it the best quarter in 9 years. Despite fears for the US economy, consumer confidence and retail sales gauges remain robust. On that front, US retail sales numbers are due on Thursday shortly after Walmart reports.
Tencent and Alibaba
We’ll also be watching earnings from China giants Tencent and Alibaba. The ongoing trade dispute between the US and China is sure to be a weight, however Chinese consumers have remained relatively robust. For Alibaba, in addition to its ecommerce platform, we’ll be watching to see how well its cloud computing business is doing. Both represent important bellwethers for the Chinese economy.
Earnings season is still going strong, with these earnings releases in the next week.
|Pre-Market||14th August||Tencent Holdings Ltd – Q2 Earnings|
|After-Market||14th August||Cisco Inc – Q2 Earnings|
|Pre-Market||15th August||Walmart – Q2 Earnings|
|15th August||Alibaba – Q2 Earnings|
|After-Market||15th August||NVIDIA Corp – Q2 Earnings|
Tune in live or watch on catch-up.
|07.15 GMT||12th August||European Morning Call|
|17.00 GMT||12th August||Blonde Markets|
|12.30 GMT||13th August||LIVE: US CPI Coverage|
|15.30 GMT||13th August||Asset of the Day: Bullion Billions|
|10.00 GMT||15th August||Walmart Earnings Preview: LIVE|
Watch out for the following economic events in the coming week.
|08.30 GMT||13th August||UK Average Earnings|
|12.30 GMT||13th August||US CPI Inflation|
|09.00 GMT||13th August||Germany ZEW Economic Sentiment|
|01.30 GMT||14th August||Australia Wage Price Index|
|02.00 GMT||14th August||China Industrial Production|
|08.30 GMT||14th August||US CPI Inflation|
|01.30 GMT||15th August||Australia Unemployment Rate|
|08.30 GMT||15th August||UK Retail Sales|
|12.30 GMT||15th August||US Retail Sales, Philly Fed Manufacturing Index|
Preview: Apple Q3 Earnings
Earnings season is in full swing and there’s a big name on the calendar this week.
Apple will announce its Q3 earnings after the market close on Tuesday, and it looks like it could be a mixed bag.
The tech giant saw revenue fall in the first two quarters of this fiscal year and a profits warning from Tim Cook at the start of the year. While guidance suggests that things are improving, this report could throw a few surprises our way.
“What we know: It’s tough in China, iPhone sales are not what they were, Services growth is strong,” said Neil Wilson, Chief Markets Analyst at MARKETS.COM.
“What we don’t know: if things have improved in China as was hinted at in the Q2 release and what the outlook for the rest of the year looks like. Q3 is always a bit dull, so as is often the case, the guidance for the rest of the year is key.”
The year so far
The Q2 report three months ago had its ups and downs, however Apple did report in-line earnings and upbeat guidance for the next quarter.
Guidance for the fiscal third quarter of $52.5bn-$54.5bn was particularly impressive, and well ahead of forecasts.
While Apple’s Q2 results overall were a boost to the tech sector, iPhone revenue came under pressure as it dropped 17% to $31.1 billion. Greater China sales were down 22% from the year previous, but the report hinted that things were improving, with sales picking up as the quarter progressed.
Overall revenues were down 5%, in line with consensus. EPS came in at $2.46.
Services revenues climbed to an all-time high of $11.45bn, up 16% from the year ago period, as the tech giant switches much of its attention (and investment) away from products towards services and software.
“Of course, this is very strong,” Wilson said. “But we did note at the time some mild concern that the growth rate is slowing from the fiery levels we saw last year when we got +30% prints.”
What to expect
This report will include earnings for Q3, but also the outlook for the upcoming two quarters. These will be interesting given the worries about the iPhone. Following the Q2 report, Tim Cook admitted that consumers were slower to upgrade to a new handset. This is likely to be further impacted by the guidance for the 5G refresh.
Apple’s recent acquisition of Intel’s smartphone modem business for $1bn suggests they are committed to making improvements that consumers want. However, 5G is not expected until 2020, so the iPhone 11 refresh due this autumn will likely only have small tweaks – something consumers are increasingly unwilling to give up their existing handset for.
It’s quite likely, therefore, that consumers will wait for the release of the 5G models next year, putting further pressure on iPhone sales.
In terms of what to expect about services, Wilson said: “Not only are we looking at the absolute growth rate here, but also the impact on margins for the company as a whole and the shift in the balance. Apple Services margins came in at 63.8% in Q2. For the group, management guided gross margin to be between 37% and 38%.
“However, Services makes up about 20% of Apple’s revenue, up from 16% a year before – at what point can Apple start to guide its margins higher? This could be an area for an upside surprise, if not now then perhaps heading into the year-end. A slowing in the Services growth rate from the 16% in Q2 would be a concern.”
We’ll also be on the lookout for data about the new services launched in March – News Plus, Apple Arcade, and Apple TV Plus. At the time, Cook was keen to stress that these new ventures are not hobbies and the tech firm had serious ambitions to succeed in these new markets. The Q3 report should provide some early indicators.
Finally, we’ll also be looking for any insight into how Apple thinks the ongoing trade war with China will pan out. Cook had been more positive in Q2, but the White House has insisted that there will be no tariff relief for Apple products made in China. And, the third quarter report could include scope for further acquisitions, if the recent Intel deal is anything to go by.
In terms of estimates, Wilson said: “Consensus estimates forecast revenues to remain flat year-on-year in Q3 at $53.4bn, with EPS seen at $2.10 against $2.34 a year before.”
A closer look at share price
The profits warning at the start of the year saw Apple shares take a hammering, but shares have rallied close to 50% since then.
“Breakout to $211 and beyond? Bulls looking for a break north of $211 but this could offer resistance. Sustained rally beyond $211 starts to bring all-time highs in view again. If there’s disappointment, the support trend line comes in around $185.”
On our platform, you can see the key financials for Apple ahead of the earnings report.
Week Ahead: Fed set to cut rates
Your essential guide to the week ahead
The Federal Reserve is widely anticipated to cut interest rates this week, but there are still big unanswered questions that would help the markets understand the longer-term plan.
1) Will the FOMC cut by 50bps or 25bps? Markets suggest a roughly 25% chance for a 50bps cut.
2) Is this an insurance cut or the start of a sustained easing cycle? While Jerome Powell has signalled a cut in July, it’s lot less clear whether we should expect more cuts are we progress through the latter part of 2019.
Earnings season continues and Apple is the main focus for traders this week.
Analysts are broadly bullish on Apple ahead of the results – check the Analyst Recommendations tool in the platform for more information.
Boris first week
Britain’s new prime minister enjoys his first full week at the helm. The market will be wondering if there is any likelihood for changes to Brexit deals and deadlines based on his initial talks with the EU. Sterling pairs should remain on edge.
Bank of England
The Bank of England is still shackled by Brexit – and all the related uncertainty – but it increasingly seems to be moving with the rest of the world. Instead of the next move likely to be a hike, it looks much more likely the central bank is leaning towards cutting interest rates. We’ll find out more on Thursday at noon, UK time.
Coming shortly after the Fed meeting these payroll numbers will be scrutinised as closely as ever. Job creation bounced back last month, dampening expectations for a 50bps cut – another strong print, combined with improving wage growth, may tell the market that the Fed is not under pressure to do any further easing
We’re in the thick of earnings season, so let’s look at the releases in the coming week:
|29th July||Ryanair – Q1 2020 Earnings|
|After-Market||30th July||Apple – Q3 Earnings|
|Pre-Market||30th July||Samsung – Q2 Earnings|
|Pre-Market||30th July||Pfizer Inc – Q2 Earnings|
|Pre-Market||30th July||Proctor & Gamble – Q4 Earnings|
|Pre-Market||30th July||Sony – Q1 2020 Earnings|
|30th July||Bayer – Q2 Earnings|
|Pre-Market||30th July||BP Plc – Q2 Earnings|
|Pre-Market||31st July||General Electric – Q2 Earnings|
|31st July||Airbus SE – Q2 Earnings|
|After-Market||31st July||Kraft-Heinz – Q2 Earnings|
|Pre-Market||31st July||Spotify – Q2 Earnings|
|13.00 BST07.00 BST||31st July||Fiat Chrysler – Q2 Earnings|
|31st July||BAE Systems Plc – Q2 Earnings|
|Pre-Market||1st August||Shell Plc – Q2 Earnings|
|07.15 BST||1st August||Rio Tinto – Q2 Earnings|
|Pre-Market||1st August||General Motors – Q2 Earnings|
|1st August||BMW AQ – Q2 Earnings|
|07.00 BST||1st August||Barclays Plc – Q2 Earnings|
|07.00 BST||2nd August||Royal Bank of Scotland – Q2 Earnings|
|2nd August||Berkshire Hathaway – Q2 Earnings|
|Pre-Market||2nd August||ExxonMobil Corp – Q2 Earnings|
|2nd August||BT Group Plc – Q1 202 Earnings|
Coming up on XRay this week. Tune in Live or watch on catch up.
|17.00 GMT||29th July||Blonde Markets|
|15.30 GMT||30th July||Asset of the Day: Bullion Billions|
|13.00 GMT||31st July||Asset of the Day: Indices|
|09.00 GMT||1st August||Bank of England special|
|12.30 GMT||2nd August||Nonfarm Payrolls LIVE|
Mark these events in your calendar this week:
|Tentative||30th July||Bank of Japan interest rate decision|
|01.30 GMT||31st July||Australia CPI inflation|
|18.00 GMT||31st July||FOMC interest rate decision|
|01.45 GMT||1st August||China Caixin manufacturing PMI|
|11.00 GMT||1st August||Bank of England interest rate decision|
|14.00 GMT||1st August||US ISM manufacturing PMI|
|01.30 GMT||2nd August||Australia retail sales|
|12.30 GMT||2nd August||Nonfarm payrolls|
Week Ahead: Earnings, ECB and US GDP to drive markets
The European Central Bank (ECB) provides the main headline risk event for traders as we look at whether policymakers are ready to pull the trigger on a fresh round of stimulus.Options are limited for the ECB but markets are increasingly betting it will choose to cut interest rates this year and may restart its bond-buying programme.
Estimates for US Q2 growth were revised up after better-than-expected retail sales figures last week. The question is whether there is enough strength in the quarterly growth numbers to make the market rethink just how much the Fed will cut rates. The first reading of the Q2 GDP estimate is due on Friday.
Earnings season hits full speed with a slew of corporate updates. Top of the bill is Facebook, which knocked it out the park in Q1. The consensus expected Q2 earnings per share (EPS) is $1.87, up 7.5% year-on-year. Sales are seen rising around 25% to $16.5 billion. But can advertising growth offset worries about regulation and higher costs?
Last month CEO Elon Musk said deliveries in the second quarter hit a record 95,200 cars, well ahead of the 91k expected by Wall Street. Key questions are whether achieving these production targets is leaving the business nursing additional costs, and whether management sticks to its guidance to return to profitability in Q3.
How much has the 737 MAX grounding affected sales and earnings? We should find out more about how much of a it Boeing expects to take when we get the second quarter numbers on Thursday. Boeing also has exposure to tariffs and has led to analysts downgrading the stock lately.
Earnings season continues this week so here’s your head’s up on the names to watch. The following companies are set to publish their quarterly earnings reports this week:
|Pre-Market||23rd July||Lockhead Martin Corp – Q2 Earnings|
|23rd July||Santander SA – Q2 Earnings|
|After-Market||23rd July||Visa Inc – Q2 Earnings|
|08.00 BST||23rd July||UBS – Q2 Earnings|
|After-Market||23rd July||Snap Inc -Q2 Earnings|
|Pre-Market||23rd July||Coca-Cola C – Q2 Earnings|
|After-Market (Paris)||24th July||LVMH – Q2 Earnings|
|24th July||AMD – Q2 Earning|
|12.00 BST||24th July||GlaxoSmithKline Plc -Q2 Earnings|
|After-Market||24th July||Facebook – Q2 Earnings|
|After-Market||24th July||Ford Motor Co – Q2 Earnings|
|24th July||Deutsch Bank – Q2 Earnings|
|Pre-Market||24th July||United Parcel Service – Q2 Earnigns|
|Pre-Market||24th July||Caterpillar Inc Q2 Earnings|
|After-Market||24th July||Tesla – Q2 Earnings|
|Pre-Market||24th July||AT&T Inc – Q2 Earnings|
|After-Market||25th July||Alphabet – Q2 Earnings|
|Pre-Market||25th July||Boeing Co – Q2 Earnings|
|After-Market||25th July||Starbucks Corp – Q3 Earnings|
|Pre-Market||25th Juy||Comcast – Q2 Earnings|
|07.00 BST||25th July||Unilever – Q2 Earnings|
|13.00 BST||25th July||TOTAL SA – Q2 Earnings|
|06.15 BST||26th July||Nestle – Q2 Earnings|
|Pre-Market||26th July||McDonalds Corp – Q2 Earnings|
|Pre-Market||26th July||Twitter – Q2 Earnings|
Don’t miss the expert analysis and opinion, live-streamed direct to your platform. Here are the highlights from XRay this week.
|17.00 GMT||22nd July||Blonde Markets|
|15.30 GMT||23rd July||Asset of the Day: Bullion Billions|
|19.00 GMT||23rd July||LIVE: Trader Training|
|11.45 GMT||25th July||ECB Decision LIVE|
Watch out for the biggest events on the economic calendar this week:
|From 07.15 GMT||24th July||Eurozone flash PMIs|
|13.45 GMT||24th July||US flash manufacturing PMI|
|08.00 GMT||25th July||German IFO report|
|11.45 GMT||25th July||ECB Interest Rate Decision|
|12.30 GMT||25th July||ECB Press Conference|
|12.30 GMT||26th July||US Q2 GDP first reading|
Netflix tumbles on subscriber woes
The latest earnings report from Netflix rattled investors and sent the stock tumbling in afterhours trading and languishing during yesterday’s session.
Netflix was off 17% on Wednesday evening and, despite paring gains during trading yesterday, closed 11% lower.
According to the new numbers, Netflix lost 130,000 customers in the US during the second-quarter. It’s the first time the streaming service has reported dwindling subscriber numbers in eight years. Analysts had expected US subscriber numbers to grow 352,000 across the period.
Netflix is well established in the US, and overseas is where the true growth potential lies. But the numbers here are disappointing as well, with Netflix managing to add just under half (2.83 million) paid subscribers in international territories of the 4.8 million forecast by analysts.
Netflix stumbles as competitors line up
It’s a worrying sign of weakness at a time when competition in the video on demand space is heating up. Apple, Disney, AT&T and Comcast all have streaming services in the works. The launch of these will see popular content disappear from Netflix.
For instance, Disney’s streaming service will be the exclusive home of Marvel and Star Wars movie. The two most-streamed shows on Netflix – The Office and Friends – will soon been removed as they head to Comcast’s streaming platform and HBO Max, run by AT&T, respectively.
Netflix said in a letter to shareholders that it believed the second-quarter “content slate” was less appealing than it had anticipated, driving fewer signups. The company also noted that subscription rates had slowed slightly more in regions where prices have recently increased than in those where the cost has remained unchanged.
Can Netflix afford not to raise prices?
This could reveal that Netflix is in a tricky position. With so many competitors, Netflix may find itself unable to raise prices as users can easily switch to an alternative video on demand service. But in order to stay attractive Netflix needs to continue investing heavily in content – and this does not come cheap.
Netflix has enjoyed a long run as the King of streaming. But it’s an expensive crown to keep, and the coming few quarters will see many new challengers to the throne step forward.
Market Insight: Earnings Season
Earnings season is just around the corner, with reports trickling out until the action starts week beginning July 15th. However, companies have already warned that this earnings season could be worse than even the pessimistic analyst forecasts.
According to information from FactSet, 77% of the 113 companies that have issued earnings per share guidance have warned that their figures are likely to be worse than analyst estimates. The report revealed that the number of S&P 500 companies issuing negative EPS guidance for Q2 is the second highest since 2006. The worst was in the first quarter of 2016, which saw 92 negative such warnings.
Against continuous rallying from Dow Jones and the best June for S&P 500 since 1955, this is a challenging circle to square. While markets are sluggish and trade tensions are having an impact, equities remain attractive.
Earnings also declined by 0.29% in Q1, so it’s likely to become an earnings recession. There have been rumblings of recession for a while now, but markets remain fixated on the Fed and are not pricing in bad news.
Neil Wilson, Chief Markets Analyst for MARKETS.COM said: “The problem for bulls from here is that several rate cuts by the Fed are already priced in, meaning, in the absence of a material rerating of valuations, we would need to see an improvement in earnings to push equities higher still.
There are therefore two big risks coming up: The Fed doesn’t cut as expected (even one cut this year won’t be ‘enough’), and two, corporate earnings guidance is significantly weaker than the market expects.”
What to expect from Earnings Season
Aside from some early releases, earnings season really gets going on July 15th and wraps up around mid-August. So, for three weeks, traders need to keep a close eye on the market and their assets to ensure they’re making the most of the volatility.
While estimated earnings fell by 2.6% for Q2, this decline is smaller than the five-year average (-3.3%), however the volume of companies issuing negative guidance is higher than the five-year average by some margin (77% to 70%).
Specifically, certain industries have issued more negative guidance than others with Materials and Industrials sectors leading the decline. Freeport-McMoRan, DuPont and Mosaic all recorded a decrease in their mean EPS estimate of more than 10%, while in industrials the decrease was led by Boeing, 3M and American Airlines.
Perhaps surprisingly, the Energy sector recorded the largest increase in expected earnings growth for the quarter, led by Chevron.
With a gloomy outlook for the global economy and the ongoing trade tensions, traders are unlikely to be surprised by a grim earnings season. But all eyes are on the Fed today as market participants hold their breath for a rate cut. While corporate earnings don’t directly impact policymakers, reduced earnings based on a weaker economic outlook and trade worries make a rate cut (or two) look more likely.
Jay Powell is giving his semi-annual testimony later today, and the minutes from the last FOMC meeting are published tomorrow, so traders could get some insight into where the Fed is looking.
Wilson sums it up by saying: “Expectations for earnings are low but may not be low enough. Forward earnings guidance for the remainder of the year may face downward revisions, which would drag on equity markets. However, with little else out there in terms of yield and bonds looking pricey, equities may still appeal as central banks drive investors towards risk. Over to Mr Powell…”