News

Apple’s warning hits wider sentiment, Tesla bucks trend

CMC Markets

Stocks markets in Europe are largely lower on the back of Apple’s warning that it won’t meet its quarterly revenue target on account of the coronavirus crisis in China. 

Europe

The warning from the tech giant spooked traders as it is probably a sign of what is to come from other companies that have exposure to China – which is a very long list. The health crisis is causing major disruption to businesses in the second-largest economy in the world, so traders are ducking out of equities.

Yesterday HSBC made it clear the full-year results would include some drastic news, and that was defiantly the case as profit fell by 33%. In addition to the fall in earnings, the company revealed plans to cut its head count by roughly 15%. The restructuring programme will incur impairments of more than $7 billion, plus the share buyback scheme for 2020 and 2021 will be suspended. Seeing as the CET1 ratio ticked up to 14.7%, the bank’s liquidity position is robust, it just needs to use its cash more effectively – reduce its exposure to non-core assets, and focus on more profitable activities, such as private banking.    

Intercontinental Hotels’shares have seen some volatility today as the stock was in the red in early trading on the back of disappointing figures, but it is now in positive territory. The protests in Hong Kong have hurt the business badly as the division posted a 63% fall in revenue per available room (RevPAR) in the fourth-quarter, and the metric declined by 27% on a yearly basis. Business in mainland China wasn’t great too as the operation saw a 4.5% decline in annual RevPAR, and in light of the health crisis, the outlook in the region is likely to remain weak.  

BHP shares are in the red partially because of the first-half update, and partly because of the wider sell-off in natural resource stocks. The group said that underlying attributable profit jumped by 39% to $5.10 billion, but the consensus estimate was $5.28 billion. A rally in the iron ore market assisted the bottom line. China is mineral hungry but BHP said the impact of the coronavirus on its business has been ‘muted’ so far, but the true impact of the health emergency probably won’t become apparent for several months.

US

The major indices are in the red on account of the commentary from Apple. It was only last week that equity benchmarks were posting record-highs so the announcement from the smart-phone maker prompted dealers to curtail their exposure to stocks.    

The New York Empire State Manufacturing index hit a nine month high at 12.9, which was much higher than the 5 reading that was expected, and it was a big improvement on the 4.8 reading of January. The report bodes well for the flash manufacturing PMI reading that is due out later this week.

Tesla shares are up more than 5% following Morgan Stanley and Bernstein price target upgrades. Bernstein hiked its price target to $730 from $325, which is a huge upward revision. Morgan Stanley were a little less bullish as they raised their price target to $500 from $360.

Apple shares are slightly lower today after the company warned it wouldn’t hit its second-quarter revenue target on account of the coronavirus situation in China. Store closures in the country in question along with disruptions to the supply chain will hold the company back. Essentially the tech giant thought that businesses in China would get back to full-swing after the Lunar New Year celebrations, but that wasn’t the case. The relatively small move in Apple shares suggests that traders aren’t overly scared.      

Walmartshares are a little higher on the session despite no-so-hot fourth-quarter figures. EPS were $1.38, while traders were expecting $1.43. Revenue came in at $141.67 billion, missing the $142.49 billion forecast. The same-store-sales metric showed 1.9% growth, but dealers were expecting 2.3% growth.    

FX

EUR/USD briefly traded below the 1.0800 mark in the wake of the New York Empire State Manufacturing index being released. The euro has come under pressure recently, and the robust reading pushed it to a new multi-year lows. The manufacturing update isn’t usually influential but it says a lot about the euro’s weakness that it can dent the currency.

GBP/USD is showing modest gains which is impressive seeing as the US dollar is in positive territory. The UK labour market continues to be in rude health as the unemployment rate held steady at 3.8%, but the earnings reading that removes bonuses cooled to 3.2% from 3.4%. Wages are still outstripping CPI – 1.3%, so workers are receiving a nice increase in real wages.

Commodities

Traders have adopted a risk-off strategy, which pushed gold up to a level last seen in early January. The declines in global equity markets triggered higher demand for the metal as it is considered to be lower risk. Gold hasn’t been too volatile in the past week, but it remains in its recent bullish trend. 

Renewed fears about the health situation in China have dented the oil market. Brent crude plus WTI are in the red as the warnings from Apple about it targets acted as a warning for all companies that are connected to China. The energy market has enjoyed a bounce recently so the news from the tech giant acted as an excuse to book profits.

 


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